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CHEAP-MONEY  EXPERIMENTS 


CHEAP-MON^EY 
EXPERIMENTS 

IN  PAST  AND  PRESENT  TIMES 


reprinted,  with  slight  revision,  from 

"topics  op  the  time"  in 

THE  CENTURY  MAGAZINE 


NEW  YORK 

THE  CENTURY  CO. 

1892 


Copyright,  1891, 1892,  by  The  Century  Co. 


THE  DE  VINNE  PRESS. 


3^ 

4 


HC 


^70. 


hSf 


CONTENTS 

^"  PAGE 

*'"'        The  People  and  Finance 7 

>- 

5        The  English  Land  Bank 15 

2  The  Rhode  Island  Paper  Bank  .  ,  .  .22 
Modern  Cheap-Money  Panaceas  .  .  .  .  31 
A  Nation  for  a  Mortgage 39 

?*•       The  Argentine  Cheap-Money  Paradise        .        .        47 

^       The  Subtreasury  Cheap-Money  Plan      .        .        .GO 
p 

The  "Per  Capita"  Delusion  ....        68 

Michigan's  "Wild-Cat"  Banks 75 

Alabama's  Thousand-Dollar-a-Day  Blunder      .        82 

Mississippi's  Crop-Moving  Currency         .        .        .89 

A  Cheap-Money  Retrospect 94 

The  People's  Money 100 

The  French  Assignats  and  IMandats  .        .      109 

Another  Word  on  "Cheap  Money"         .       .  117 


388419 


CHEAP-MONEY  EXPERIMENTS   IN 
PAST  AND  PRESENT  TIMES 

CHAPTER  I 
THE  PEOPLE  AND  FINANCE 

THERE  are  a  few  elementary  principles  in 
economic  science  the  mastery  of  which  by 
the  great  body  of  the  American  people  would  be 
of  incalculable  value  to  us  as  a  nation.  One  of 
these  is  that  no  government  can  create  money  out 
of  anything  which  it  may  choose  to  call  money. 
Another  is  that  all  classes  of  the  people,  rich  and 
poor,  laborer  and  employer,  are  far  better  off  with 
a  sound  and  stable  currency  than  they  are  with 
any  of  the  varieties  of  "cheap  money."  Another 
is  that  no  part  of  the  financial  or  business  world 
can  be  benefited  or  injured  by  changes  in  the 
monetary  standard  of  value  without  correspond- 
ing benefit  or  injury  to  the  other  parts.  StiU 
another  is  that  the  larger  part  of  the  business  of 
the  country  is  transacted  upon  credit,  and  that 
anything  which  tends  to  disturb  or  to  foreshadow 


8        CHEAP-MONEY  EXPERIMENTS 

disturbances  of  the  monetary  standard  of  value 
cripples  credit  and  demoralizes  all  business.  Fi- 
nally, though  we  have  by  no  means  exhausted  the 
list,  it  would  be  of  the  highest  importance  for  the 
common  people  to  become  thoroughly  convinced 
of  the  fact  that  in  every  instance  in  which  the 
financial  world  is  disturbed  by  changes  or  threats 
of  changes  in  the  standard  of  value  the  sufferers 
are  always  the  poorer  people  and  the  beneficiaries 
always  the  rich,  for  the  latter  are  able  to  guard 
against  the  coming  trouble  which  they  are  quick 
to  scent,  while  the  former  are  powerless  to  take 
the  necessary  precautions  even  if  they  were  able 
to  anticipate  it. 

The  harmful  delusion  that  the  Government  has 
the  power  to  create  money  is  traceable  directly  to 
the  Legal  Tender  Act  of  1862.  Previous  to  that 
time  the  American  people,  in  common  with  those 
of  other  enlightened  nations,  believed  that  the  sole 
function  of  government  in  relation  to  money  was 
to  certify  to  the  weight  and  purity  of  the  metal 
contained  in  it.  This  view,  which,  it  is  scarcely 
necessary  to  say,  has  been  shown  by  the  experi- 
ence of  all  civilized  countries  to  be  the  only  sound 
one,  was  completely  upset  in  the  minds  of  thou- 
sands of  uninstructed  people  by  the  issue  of  the 
legal  tenders  and  the  subsequent  decisions  of  the 
Supreme  Court  upholding  the  right  of  Congress 
to  make  such  issue.  The  pernicious  doctrine  that 
anything  which  the  Government  might  choose  to 
stamp  as  money — paper,  or  silver,  or  nickel,  or 


THE  PEOPLE  AND  FINANCE  9 

copper — became  ipso  facto  money  for  the  amount 
named  on  its  face  obtained  so  firm  a  lodgment  in> 
the  popular  mind  that  calls  began  to  be  heard 
from  all  quarters  for  the  liberal  issue  of  Govern- 
ment money  in  almost  every  form  except — gold. 
The  country  has  passed  safely  thi'ough  several 
varieties  of  the  "  greenback  craze,"  which  was  the 
most  radical  and  dangerous  form  of  the  delusion, 
but  it  has  yet  to  reach  the  solid  ground  occupied 
before  the  war.  So  long  as  the  admission  is  al- 
lowed that  the  Government  can  create  money 
there  is  no  satisfactory  answer  to  be  made  to  the 
questions,  "Why  should  we  have  a  gold  stan- 
dard?" "Why  should  we  have  national  banks?" 
or  "Wliy  should  we  have  any  limit  put  to  the 
volume  .of  our  currency  ?  "  If  the  Government 
can  create  money,  why  should  it  not  create  all 
that  everybody  wants?  Why  should  anybody 
work  for  a  living? 

We  must  get  back  as  a  people  to  a  jiist  compre- 
hension of  the  truth  that  no  government  can  make 
an  inferior  form  of  money  equal  in  value  to  a 
superior  form  like  gold  by  enacting  a  law  decree- 
ing that  it  shall  become  so,  and  that  it  cannot  do 
this  for  the  simple  reason  that  the  superior  form 
costs  more,  and  it  is  this  cost  which  constitutes 
its  value  as  a  medium  of  exchange.  The  kind  of 
money  which  every  man  wants  is  the  kind  which 
will  buy  the  most  of  the  things  which  he  needs  — 
that  is,  have  the  largest  purchasing  power.  No- 
thing is  clearer  than  that  cheap  money  means  high 


10       CHEAP-MONEY  EXPERIMENTS 

prices,  and  dear  money  means  low  prices.  Cheap 
money  is  as  costly  for  a  nation  as  it  is  for  an  in- 
dividual. Mr.  H.  C.  Adams  has  demonstrated  very 
convincingly  that  the  legal  tenders  made  the  ex- 
pense of  our  civil  war  greater  by  $800,000,000  than 
it  would  have  been  had  they  never  been  issued. 
With  individuals,  the  only  man  who  is  benefited 
by  a  change  from  a  dear  money  to  a  cheaper  one 
is  he  who  owes  money  —  that  is,  belongs  to  what 
is  called  the  debtor  class.  He  is  rid  at  once  of  a 
portion  of  his  debt,  because  he  can  pay  it  in  money 
of  less  value  than  that  in  use  at  the  time  of  the 
debt's  contraction.  But  to  the  average  man,  the 
wage-earner  of  every  variety,  the  change  means 
greatly  increased  cost  of  living  with  no  increase 
of  income.  He  still  receives  the  same  number  of 
dollars  as  wages,  but  each  dollar  buys  less  than  it 
did  before.  If  he  has  debts,  the  depreciation  of 
them  is  by  no  means  in  the  same  proportion  as  in 
his  wages.  Suppose,  for  example,  he  is  receiving 
$1000  a  year  and  that  he  owes  $1000.  A  reduction 
of  ten  per  cent,  in  the  value  of  money  means  that 
his  wages  have  been  cut  down  one  tenth  —  that  is, 
that  he  will  lose  $100  each  year,  whereas  his  debt 
has  only  been  reduced  $100  for  all  time. 

The  people  who  would  benefit  at  first  by  a  change 
to  cheap  money  are  farmers  and  others  who  have 
property  which  is  heavily  mortgaged,  and  who 
would  be  thus  relieved  of  a  portion  of  their  debt. 
The  case  of  the  farmer  who  has  been  forced  to  mort- 
gage his  farm  is  a  peculiarly  hard  one.     His  con- 


THE  PEOPLE  AND  FINANCE  11 

ditioii  has  been  growing  worse  and  worse  yearly, 
for  many  reasons,  but  chiefly  because  most  of  the 
things  he  has  had  to  buy  have  been  taxed,  while 
the  chief  products  of  his  farm  have  not.  He  has 
been  forced  to  buy  at  the  higher  prices  of  a  re- 
stricted home  market,  and  to  sell  at  the  prices  set 
in  the  unrestricted  market  of  the  world.  A  change 
to  a  cheaper  form  of  money  would  give  him  relief, 
provided  he  were  able  to  pay  off  his  debt  at  once, 
but  otherwise  his  gain  would  be  only  in  his  ability 
to  pay  his  interest  money  in  a  cheaper  currency. 
He  would  suffer,  in  common  with  all  others  of  the 
hard-working  class,  fi'om  the  inevitable  evils  atten- 
dant upon  cheap  money,  with  the  dear  goods  which 
such  money  always  brings  in  its  train.  Then,  too, 
he  would  discover,  in  case  he  wished  to  procure 
further  loans,  that  he  must  obtain  them  on  a  gold 
basis,  for  the  mere  hint  of  the  coming  of  a  cheap- 
er currency  is  sufficient  always  to  force  capital- 
ists into  the  defensive  position  of  loaning  large 
amounts  on  that  basis  alone.  In  the  end  the  far- 
mer would  find  that  his  last  condition  was  worse 
than  his  first,  and  that  his  every  effort  to  gain  re- 
lief through  legislation  which  promised  to  make 
"money  plenty"  had  the  same  result, —  namely, 
to  put  him  more  helplessly  in  the  power  of  men 
whose  chief  business  is  to  speculate  in  money. 

Another  class  of  temporary  beneficiaries  from 
cheaper  money  are  employers,  who  are  able  to  pay 
their  employees  in  the  cheap  money,  in  small 
amounts,  at  its  full  nominal  value,  while  obtaining 


12       CHEAP-MONEY  EXPERIMENTS 

it  for  such  payment  in  large  amounts  and  at  its 
gold  value.  Yet  we  believe  it  is  a  fact  that  the 
great  body  of  employers  are  agreed  that  the  slight 
gains  which  are  possible  in  this  way  are  far  from 
being  an  adequate  set-off  to  the  losses  caused  to 
all  business  by  the  uncertainties  of  an  unstable 
currency.  Another  class  is  composed  of  the  pro- 
fessional speculators  in  gold  and  the  hoarders  of 
gold,  who,  because  of  their  possession  of  capital, 
are  able  to  speculate  in  the  superior  money  at 
the  expense  of  the  great  mass  of  the  people,  who 
are  compelled  to  accept  the  inferior  medium  of 
exchange. 

All  this  leads  naturally  and  inevitably  to  the 
general  conclusion  that  the  best  money  for  all 
classes  in  the  long  run  —  of  course,  including  the 
farmers  —  is  that  which  is  most  stable  in  value ; 
that  is,  which  most  completely  and  steadily  serves 
the  purpose  of  a  medium  of  exchange.  It  should 
be  constantly  borne  in  mind  that  the  great  volume 
of  the  business  of  the  country,  what  is  called  ex- 
change of  commodities,  is  conducted  on  credit. 
Statistics  show  that  about  ninety-two  per  cent,  of 
the  trade  of  the  country  is  carried  on  by  means  of 
credit  instruments  and  only  eight  per  cent,  with 
actual  money.  The  mere  hint  of  a  change  in  the 
value  of  money  sends  a  thrill  of  alarm  along  the 
entire  credit  system,  and  leads  to  instantaneous 
contraction.  This  is  at  once  felt  in  every  branch 
of  business  and  industry.  There  is  at  once  a 
double  strain  put  upon  the  trade  of  the  country. 


THE  PEOPLE  AND  FINANCE        13 

Gold  and  currency  are  hoarded  in  anticipation  of 
approaching  uncertainty  of  values,  and  credit  is 
given  only  in  cases  of  the  strongest  security.  All 
our  serious  commercial  troubles,  our  panics  and 
threatened  panics,  our  tight  money-markets  and 
business  stringencies,  are  directly  traceable  to  this 
contraction  of  credit ;  yet  the  uninstructed  public 
almost  invariably  calls  for  the  issue  of  cheaper 
money  as  the  only  remedy,  not  recognizing  that 
the  mischief  has  been  caused,  not  by  a  scarcity  of 
currency,  but  by  a  contraction  of  credit. 

There  ought  to  be  a  more  general  recognition 
of  the  fact  that  the  economic  administration  of  a 
nation,  the  regulation  of  its  currency  and  finances, 
calls  for  expert  ability  of  a  rare  kind.  In  every 
generation  there  are  comparatively  few  men  who 
have  the  requisite  intellectual  equipment  for  this 
task,  and  in  almost  every  other  civilized  country 
except  ours  they  are  sought  out  and  put  in  exclu- 
sive charge  of  it.  Few  intelligent  people  venture 
upon  the  experiment  of  being  their  own  doctors  or 
lawyers,  recognizing  the  superior  fitness  of  expert 
ability  to  perform  those  functions.  Why  shall  we 
as  a  nation  be  less  wise  ?  We  must  sooner  or  later 
realize  the  folly  of  our  course,  and  must  devise 
some  plan,  not  inconsistent  with  the  principles  of 
popular  government,  by  which  the  control  of  our 
finances  shall  be  put  into  the  hands  of  a  few  tried 
and  trained  financiers,  who  shall  be  removed  ab- 
solutely beyond  the  influence  of  popular  clamor. 
We  shall  then  have  far  less  trouble  than  we  have 
2 


14  CHEAP-MONEY  EXPERIMENTS 

now.  The  people  at  large  would  be  benefited  in 
every  way,  and  in  none  more  so  than  through  the 
restrictions  which  such  administration  of  our 
finances  would  put  upon  the  activities  of  certain 
conscienceless  manipulators  in  Wall  street,  who 
find  now  their  best  opportunities  for  mischief  in 
the  uncertainty  which  constant  meddling  with  the 
standard  of  value  inevitably  produces. 


CHAPTER  II 
THE  ENGLISH  LAND  BANK 

THE  desire  for  '^  cheap  money,"  under  the  de- 
lusion that  plenty  of  it  will  make  everybody's 
life  easier  and  his  burdens  lighter,  is  very  many 
years  old.  Nothing  is  more  interesting  and  in- 
structive in  the  study  of  financial  history  than  the 
almost  constant  recurrence  of  the  same  fallacies 
and  popular  crazes  in  different  countries  during 
the  past  three  hundred  years  or  more.  The  pro- 
phets of  new  panaceas  of  to-day  are  simply  preach- 
ing the  half-truths  and  misleading  sophistries  of 
similar  prophets  in  various  lands  at  almost  any 
time  since  the  close  of  the  seventeenth  century. 
They  have  all  started  from  the  same  general  point; 
that  is,  dissatisfaction  with  established  financial 
methods  and  the  assumption  that  the  moneyed 
classes,  the  brokers  and  capitalists,  are  the  ene- 
mies and  oppressors  of  the  poorer  classes. 

There  are  many  illustrations  to  support  these 
observations  which  we  might  cite  from  history, 
but  none  which  bears  more  directly  upon  certain 
aspects  of  our  financial  experience  as  a  nation 

15 


16       CHEAP-MONEY  EXPERIMENTS 

than  that  of  the  famous  Land  Bank  scheme,  put 
forward  in  Enghxnd  in  the  reign  of  William  and 
Mary,  in  1693.  It  appeared  amid  a  swarm  of 
other  financial  plans  which  were  broached  in  the 
English  Parliament  when  the  proposition  to  estab- 
lish the  Bank  of  England  was  under  consideration. 
There  were  in  existence  at  that  time  two  great 
public  banks  renowned  throughout  Europe,  the 
Bank  of  St.  George  at  Genoa,  and  the  Bank  of 
Amsterdam.  The  former  had  existed  for  nearly 
three  hundred  years,  and  the  latter  for  more  than 
eighty,  and  both  had  demonstrated  many  times 
their  ability  to  withstand  the  severest  financial 
crises.  England  felt  the  need  of  a  similar  finan- 
cial bulwark,  and  its  establishment  was  decreed  in 
1694,  when  the  act  of  foundation  for  the  Bank  of 
England  was  passed  by  Parliament.  While  that 
act  was  under  consideration,  one  Hugh  Chamber- 
lain, who  had  fitted  himself  for  the  solving  of 
financial  problems  by  practising  medicine,  came 
forward  with  a  scheme  for  a  Land  Bank.  The 
peculiarity  of  this  bank  was  that  its  currency  was 
to  consist  solely  of  notes  issued  in  unlimited  quan- 
tities upon  landed  security.  Every  person  who 
had  real  property  was  to  be  allowed  to  hold  the 
land  and  at  the  same  time  receive  an  issue  of  paper 
money  to  its  full  value.  Thus,  says  Macaulay,  in 
his  picturesque  account  of  the  scheme,  if  a  man's 
'^  estate  was  worth  two  thousand  pounds,  he  ought 
to  have  his  estate  and  two  thousand  pounds  in 
paper  money."    But  this  was  not  all.     He  ought 


THE  ENGLISH  LAND  BANK  17 

also  to  be  allowed  to  rate  the  value  of  his  estate  at 
as  many  times  its  annual  income  as  the  number  of 
years  for  which  it  was  pledged.  Thus  if  its  in- 
come was  a  thousand  dollars,  a  grant  of  it  for 
twenty  years  must  be  worth  $20,000  in  paper 
money,  and  that  for  one  hundred  years  $100,000. 
Everybody  who  opposed  this  remarkable  form 
of  reasoning  was  denounced  as  a  "usurer."  In 
laying  his  plan  before  Parliament,  Chamberlain 
undertook  to  raise  eight  thousand  pounds  upon 
every  freehold  estate  of  one  hundred  and  fifty 
pounds  a  year,  which  would  be  brought  into  his 
bank  without  dispossessing  the  freeholder.  The 
plan  was  considered  in  committee  and  was  re- 
ported favorably  to  the  House,  the  committee 
declaring  that  it  was  practicable  and  would  tend 
to  benefit  the  nation ;  but  the  report  was  never 
acted  upon. 

The  scheme  was  revived  in  1696,  but  in  a  some- 
what less  ridiculous  form .  Chamberlain  was  forced, 
under  protest,  to  abandon  his  idea  that  a  lease  of 
land  for  a  term  of  years  was  worth  many  times 
the  fee  simple,  and  to  be  content  with  a  bank  which 
lent  money  on  landed  security  to  the  full  value  of 
the  land.  He  offered  also  to  lend  the  Government, 
in  return  for  the  Land  Bank's  charter,  more  than 
two  and  a  half  million  pounds  at  seven  per  cent. 
The  Bank  of  England  had,  in  return  for  its  char- 
ter, advanced  to  the  Government  only  one  million 
at  eight  per  cent.  William,  being  in  pressing  need 
of  money  for  his  military  operations  in  the  Nether- 


18       CHEAP-MONEY  EXPEEIMENTS 

lands,  welcomed  the  prospect  of  such  generous  aid, 
and  was  not  disposed  to  question  the  source  from 
which  it  came.  The  country  members  were,  ac- 
cording to  Macaulay,  "  delighted  by  the  prospect 
of  being  able  to  repair  their  stables,  replenish  their 
cellars,  and  give  portions  to  their  daughters,"  and 
at  the  same  time  retain  possession  of  their  land. 
A  bin  was  passed  authorizing  the  Government  to 
borrow  two  million  five  hundred  and  sixty-four 
thousand  pounds  at  seven  per  cent.  If  before  the 
1st  of  August  the  subscription  for  one  half  of  this 
loan  should  have  been  filled,  and  one  half  of  the 
sum  subscribed  should  have  been  paid  into  the 
exchequer,  the  subscribers  were  to  become  a  cor- 
porate body  under  the  name  of  the  National  Land 
Bank.  As  this  bank  was  intended  expressly  to 
"aiccommodate  country  gentlemen,  it  was  forbidden 
to  lend  money  on  any  other  private  security  than 
a  mortgage  on  land,  and  must  lend  on  such  mort- 
gages at  least  half  a  million  annually,  at  a  rate  not 
to  exceed  three  and  a  haK  per  cent,  if  payments 
were  quarterly,  or  four  per  cent,  if  they  were  half- 
yearly.  The  market  rate  of  interest  at  the  time  on 
the  best  mortgages  was  full  six  per  cent. 

In  order  to  set  a  good  example  the  king  sub- 
scribed five  thousand  pounds  just  before  his  de- 
parture on  his  Netherland  campaign,  and  signed 
a  warrant  appointing  commissioners  to  receive  the 
names  of  subscribers.  A  great  meeting  was  held 
in  behalf  of  the  new  bank,  rooms  were  taken  in 
two  different  parts  of  London  for  the  receiving  of 


THE  ENGLISH  LAND  BANK  19 

subscriptions,  and  agents  were  sent  into  the  country 
to  inform  the  country  gentlemen  of  the  dawn  of 
the  new  era  of  prosperity.  Three  weeks  passed 
after  the  opening  of  the  subscription  books,  and  it 
was  discovered  that  only  six  thousand  five  hundred 
pounds,  including  the  king's  five  thousand,  had 
been  subscribed.  The  1st  of  August  came,  and 
the  whole  amount  subscribed  by  the  nation  in  ad- 
dition to  the  king's  subscription  reached  only  two 
thousand  one  hundred  pounds.  The  promoters  of 
the  scheme  begged  the  Government  for  more  time, 
and  for  a  reduction  in  the  amount  required  to  be 
paid  in  before  the  act  of  incorporation  should  be 
issued;  and  the  Government,  being  in  great  stress 
for  funds,  conceded  that  if  four  hundred  thousand 
pounds  were  advanced  the  bank  should  be  incor- 
porated at  the  next  session  of  Parliament.  But 
concessions  were  of  no  avail  in  stimulating  sub- 
scriptions. The  term  of  the  commission  expired, 
and  the  ofiices  were  closed  upon  a  total  collapse  of 
the  enterprise. 

The  causes  of  this  failure  are  so  clear  that  it  is 
a  wonder  anybody  ever  expected  a  different  result. 
The  avowed  object  of  the  scheme  was  to  benefit 
the  landowners  who  wished  to  borrow  money,  and 
to  injure  the  ''moneyed  men,  those  worst  enemies 
of  the  nation."  "The  fact  is,"  says  Professor 
Thorold  Rogers,  in  his  luminous  account  of  the 
affair  in  his  "First  Nine  Years  of  the  Bank  of 
England,"  "the  landed  men  hated  the  moneyed 
men  with  a  bitterness  in  which  envy,  contempt, 


20       CHEAP-MONEY  EXPERIMENTS 

pride,  and  religious  bigotry  were  the  strongest 
ingredients.  They  looked  on  their  growing  wealth 
with  envy,  on  their  occupation  with  scorn,  on  their 
bii'th  with  disdain,  on  their  creed  and  discipline 
with  intolerant  hate.  Now  in  such  a  frame  of 
mind  such  people  will  believe  anything,  even  such 
a  quack  as  Chamberlain  was — not  the  first  adven- 
turer who  has  imagined  himself  a  financier."  Yet 
upon  these  very  moneyed  men  they  depended  ab- 
solutely for  the  success  of  their  enterprise.  As 
Macaulay  says,  the  '^  country  gentlemen  wished 
well  to  the  scheme ;  but  they  wished  well  to  it  be- 
cause they  wanted  to  borrow  money  on  easy  terms; 
and,  wanting  to  borrow,  they  of  course  were  not 
able  to  lend  it.  The  moneyed  class  alone  could 
supply  what  was  necessary  to  the  existence  of  the 
Land  Bank;  and  the  Land  Bank  was  avowedly 
intended  to  diminish  the  profits,  to  destroy  the 
political  influence,  and  to  lower  the  social  position 
of  the  moneyed  class.  As  the  usurers  did  not 
choose  to  take  on  themselves  the  expense  of  put- 
ting down  usury,  the  whole  plan  failed  in  a  manner 
which,  if  the  aspect  of  public  affairs  had  been  less 
alarming,  would  have  been  exquisitely  ridiculous." 
There  have  been  within  the  past  year  several 
schemes  for  the  relief  and  benefit  of  the  farmers  of 
the  country  which  were  scarcely  more  rational  than 
this  of  the  quack  of  1693.  If  any  of  them  were  to 
be  embodied  in  law,  it  would  fail  to  accomplish 
the  results  expected  of  it,  for  reasons  similar  to 
those  which  made  the  failiu'e  of  the  Land  Bank 


THE  ENGLISH   LAND  BANK  21 

scheme  so  ceitaiu.  Tlie  moneyed  class  is  always 
in  the  position  to  guard  itself  against  the  bad  ef- 
fects of  disturbing  financial  legislation,  and  even 
to  profit  by  it  at  the  expense  of  the  poorer  class. 
A  competent  authority  upon  the  subject  of  farm 
mortgages  declares  that  ninety  per  cent,  of  them 
are  negotiated  by  systematic  lenders,  banks,  and 
corporations  organized  for  this  express  purpose, 
and  that  it  has  been  the  custom  of  many  of  these 
lenders  to  make  the  mortgage  debt,  both  principal 
and  interest,  payable  in  gold.  It  is  believed  that 
fully  one  half  of  all  the  mortgage  indebtedness  of 
the  country  is  in  terms  expressly  payable  in  gold, 
though  this  is  more  generally  the  case  in  urban 
than  in  farm  loans.  If  we  were  to  have  free  silver 
coinage,  and  the  country  were  to  reach  the  silver 
standard,  and  gold  were  to  rise  to  one  hundred 
and  twenty  or  thereabouts,  mortgagers  who  are 
counting  upon  having  their  debts  reduced  by  the 
change  would  soon  discover  their  error.  They 
would  find  that  they  would  have  to  pay  one  hun- 
dred and  twenty  dollars  in  silver  for  every  instal- 
ment of  one  hundi-ed  doUars  interest  in  gold.  In 
other  words,  they,  and  not  the  capitalists  and 
money-lenders,  would  be  the  losers  from  this  as 
from  every  other  form  of  "cheap  money." 


CHAPTER  III 
THE  RHODE  ISLAND   PAPER  BANK 

AT  the  close  of  the  Revolutionary  War  the 
i\  people  of  Rhode  Island  found  themselves 
in  extreme  poverty  and  heavily  burdened  with 
their  share  of  the  national  debt.  The  war  had 
seriously  crippled  their  trade,  upon  which  they 
were  mainly  dependent,  and  in  their  distress  the 
people,  instead  of  patiently  waiting  for  relief  to 
come  by  the  slow  process  of  rebuilding  their 
trade,  turned  to  paper  money  for  relief.  They 
began  to  clamor,  for  a  Paper  Bank  in  1785,  and 
when  petitions  for  such  a  bank  were  rejected  by 
the  General  Assembly,  a  new  party  was  organized 
with  paper  money  as  itijaliief  principle.  They 
^ent  before  the  Assembly  again  in  1786,  and  their 
petitions  for  a  Paper  Bank  were  met  with  counter- 
petitions  against  it,  signed  by  the  merchants  of 
Providence,  and  the  project  was  defeated  again 
by  a  vote  of  two  to  one.  They  then  carried  the 
question  into  the  elections,  and  won  a  surprising 
victory,  gaining  control  of  the  General  Assembly 
by  a  large  majority.    This  body  assembled  in  May, 

22 


THE   RHODE  ISLAND   PAPEE  BANK  23 

1786,  aud  one  of  its  first  acts  was  the  passing  of  a 
law  establishing  a  Paper-money  Bank  of  one  hun- 
dred thousand  pounds.  The  bills  were  to  be  loaned 
to  the  people  on  the  principle  of  the  English  Land 
Bank,  though  on  much  less  generous  terms. 

Every  farmer  or  merchant  who  came  to  bor- 
row money  must  pledge  real  estate  for  double  the 
amount  desired.  The  money  was  to  be  loaned  to 
the  people  upon  this  pledge  according  to  the  ap- 
portionment of  the  last  tax,  aud  must  be  paid  into 
the  treasury  at  the  end  of  fourte^n^. years.  Great 
expectations  were  entertained  by  the  farmers  of 
the  beneficent  results  which  were  to  follow  upon 
this  new  influx  of  wealth.  "  Many  from  all  parts 
of  the  State,"  says  McMaster,  in  a  very  interesting 
chapter  upon  this  subject  in  his  "  History  of  the 
People  of  the  United  States,"  "  made  haste  to  avail 
themselves  of  their  good  fortune,  and  mortgaged 
fields  strewn  thick  with  stones  and  covered  with 
cedars  and  stunted  pines  for  sums  such  as  could 
not  have  been  obtained  for  the  richest  pastures. 
They  had,  however,  no  sooner  obtained  the  money 
and  sought  to  make  the  first  payment  at  the 
butcher's  or  the  bakei-'s  than  they  found  that  a 
heavy  discount  was  taken  from  the  face- value." 

The  depreciation  of  the  new  money  began 
literally  with  its  issue.  Every  merchant  and  trades- 
man in  the  State  refused  to  receive  it  for  its  face- 
value,  and  the  holders  of  it  refused  to  make  any 
discount.  The  General  Assembly  came  to  the  aid 
of  the  bankj,  and  sought  to  give  its  paper  money 


24       CHEAP-MONEY  EXPERIMENTS 

full  value  by  statutory  enactment.  A  forcing  act 
was  jpassed  subjecting  any  person  who  should  re- 
fuse to  take  the  bills  in  payment  for  goods  on  the 
same  terms  as  specie,  or  should  in  any  way  dis- 
courage their  circulation  on  such  terms,  to  a  fine 
of  one  hundred  pounds  and  to  the  loss  of  his  rights 
as  a  freeman. 

This  made  matters  worse  than  ever.  Merchants 
and  traders  refused  to  make  any  sales  whatever, 
many  of  them  closing  their  shops,  disposing  of 
their  stock  by  barter,  and  going  out  of  business. 
In  fact,  money  almost  ceased  to  circulate  at  all. 
Nearly  all  kinds  of  business  were  transacted 
by  barter,  rents  were  paid  in  grain  and  other 
commodities,  and  the  ojnly;^  people  who  used  the 
paper  money  were  those  who  had  borrowed  it  on 
theii*  land.  The  chief  cities  of  the  State,  Provi- 
dence and  Newport,  presented  a  very  remarkable 
spectacle.  Half  their  shops  were  closed,  their  in- 
habitants idle,  and  their  streets  animated  only  by 
groups  of  angry  and  contentious  men  blaming  one 
another  for  the  blight  which  had  fallen  upon  their 
business  and  industries.  In  order  to  retaliate  upon 
the  merchants  and  traders  for  refusing  to  take 
their  money,  the  farmers  refused  to  bring  their 
produce  to  market.  A  famine  was  so  imminent 
in  Providence  because  of  this  withholding  of  sup- 
plies that  a  town  meeting  was  called  to  devise 
means  for  obtaining  the  necessaries  of  life.  To 
provide  immediate  relief  for  persons  in  want  of 
bread  five  hundred  dollars  was  authorized  to  be 


THE   EHODE   ISLAND   PAPER   BANK  25 

borrowed  and  sent  abroad  to  bny  corn  to  be  sold 
or  bartered  by  the  town  council.  In  Newport  a 
mob  brought  on  a  riot  by  attempting  to  force 
grain-dealers  to  sell  corn  for  paper-money. 

In  August,  about  two  months  after  the  establish- 
ment of  the  bank,  affairs  became  so  desperate  that 
a  State  convention  controlled  by  the  country  towns 
adopted  a  report  recommending  the  General  As- 
sembly to  enforce  and  amend  the  penal  laws  in 
favor  of  paper  money,  and  advising  farmers  to 
withhold  their  produce  from  the  opponents  of  the 
bank.  The  General  Assembly,  convened  in  special 
session  for  the  purpose,  passed  an  additional  forc- 
ing act,  which  suspended  the  usual  forms  of  justice 
in  regard  to  offenders  against  the  bank,  by  requir- 
ing an  immediate  trial,  within  three  days  after  com- 
plaint was  entered,_witliout  a  jury  and  before  a 
court  of  which  three  judges  should  constitute  a 
quorum,  whose  decision  should  be  final,  and  whose 
judgment  should  be  instantly  com  plied  with  on  pen- 
alty of  imprisonment.  The  fine  for  the  first  offense 
was  fixed  at  from  six  to  thirty  pounds,  and  for  the 
second  at  from  ten  to  fifty  pounds.  "This  mon- 
strous act  of  injustice,"  says  S.  G.  Arnold,  in  his 
"History  of  the  State  of  Ehode  Island,"  "was 
carried  through  the  legislature Jby  a  large  majority, 
and  the  solemn  protest  against  it  as  a  violation  of 
every  principle  of  moral  and  civil  right,  of  the 
charter,  of  the  articles  of  confederation,  of  treaty 
obligations,  and  of  every  idea  of  honor  or  honesty 
entertained  among  men,"  which  a  minority  of  the 

3 


26       CHEAP-MONEY  EXPERIMENTS 

members  presented,  was  not  allowed  to  appear  on 
the  record. 

This  second  forcing  act  brought  matters  to  a 
crisis.  A  butcher  in  Newport  was  brought  into 
the  Superior  Court  on  a  charge  of  refusing  to  re- 
ceive paper  money  at  par  in  payment  for  meat. 
A  great  concourse  of  spectators  attended  the  trial, 
which  was  before  a  full  bench  of  five  judges.  Lead- 
ing lawyers  appeared  for  both  sides,  and  their 
arguments  occupied  an  entire  day.  Two  of  the 
judges  spoke  against  the  forcing  acts,  and  the 
other  three  were  of  the  same  mind.  On  the  follow- 
ing morning  the  formal  decision  of  the  court  was 
announced,  declaring  the  acts  unconstitutional^ 
and  void,  and  dismissing  the  complaint.  The 
wrath  of  the  General  Assembly  at  this  decision 
was  great.  A  special  session  was  at  once  convened, 
and  the  judges  were  summoned,  in  language  of 
incredible  arrogance,  to  appear  before  the  As- 
sembly to  assign  the  "reasons  and  grounds"  for 
their  decision.  Three  of  the  judges  obeyed  the 
summons,  but  as  the  other  two  were  detained  by 
sickness  the  hearing  was  postponed  till  the  next 
session.  At  the  next  session  four  of  the  offending 
judges  were  removed.  Before  adjourning,  the 
General  Assembly  prepared  a  new  act  to  '^  stimu- 
late and  give  efficacy  to  the  paper  bills."  This 
was  called  the.  Test  Act,  and  it  contained  one  of 
the  most  remarkable  oaths  ever  prescribed  to  a 
free  people.  Every  one  taking  the  oath  bound 
himself  in  the  most  solemn  manner  to  do  his  ut- 


THE  RHODE  ISLAND  PAPER  BANK  27 

most  to  support  the  paper  bank  and  to  take  its 
money  at  par.  All  persons  refusing  to  take  the 
oath  were  disfranchised.  Ship-captains  were  for- 
bidden to  enter  or  to  go  out  of  ports  of  the  State, 
lawyers  were  not  to  be  allowed  to  practise,  men 
were  not  to  be  allowed  to  vote,  politicians  were 
not  to  be  allowed  to  run  for  ofRce,  and  members 
of  the  legislature  were  not  to  be  allowed  to  take 
their  seats  until  the  oath  had  been  taken.  This 
was  so  stringent  a  measure  that  the  General  As- 
sembly was  afraid  to  take  the  responsibility  of 
enacting  it,  and,  after  considering  it,  referred  it 
to  the  people  of  the  towns  for  approval.  Only 
three  towns  in  the  State  voted  in  its  favor,  all  the 
others  rejecting  it. 

This  ended  all  efforts  to  force  the  people  to  take 
the  money  at  par  in  ordinary  business  transactions. 
The  General  Assembly,  in  January,  1787,  formally 
repealed  the  forcing  acts,  and  then  took  the  first 
step  toward  the  repudiation  of  the  State  debt  by 
ordering  the  treasurer  to  pay  off  one  fourth  of  it 
in  the  bills  received  for  taxes ;  that  is,  in  the  de- 
preciated paper  money,  which,  at  that  time,  was 
circulating  on  the  basis  of  six  to  one.  By  suc- 
cessive steps  of  this  and  similar  kinds  the  entire 
State  debt  was  extinguished,  public  creditors  being 
forced  to  take  it  on  terms  prescribed  by  the  State, 
or  to  forfeit  their  claims.  The  last  instalment  of 
the  debt  was  got  rid  of  in  1789,  in  a  forced  settle- 
ment, when  the  paper  money  which  the  helpless 
creditors  received  was  worth  only  one  twelfth  as 


28       CHEAP-MONEY  EXPERIMENTS 

much  as  coin.  "Had  a  general  act  of  insolvency," 
says  Arnold,  "relieving  all  debtors  from  their  lia- 
bilities and  the  State  from  its  legal  obligations 
been  passed  in  the  first  instance,  the  same  end 
would  have  been  more  speedily  accomplished,  and 
the  means  would  not  have  differed  very  widely 
from  those  that  were  actually  employed.  .  .  . 
It  fell  but  little  short  of  repudiation." 

During  1787,  when  the  value  of  the  paper 
money  ranged  from  one  sixth  to  one  tenth  that 
of  coin,  bills  in  equity  for  the  redemption  of 
mortgaged  estates  were  filed  in  large  numbers  in 
the  courts.  The  Superior  Court  of  Newport  de- 
clined to  try  any  case  in  which  a  large  sum  was 
involved.  Suitors  came  to  court  with  paper 
money  in  handkerchiefs,  bags,  and  pillow-cases, 
asking  to  have  the  holders  of  their  mortgages 
forced  to  take  this  at  par  in  redemption  of  their 
lands.  One  bag,  containing  fourteen  thousand 
dollars,  was  brought  for  the  redemption  of  a 
single  farm.  But  the  court  refused  to  try  all 
cases  of  the  kind.  The  value  of  the  paper  money 
dropped  steadily  till  fifteen  paper  dollars  were 
worth  only  one  coin  dollar.  In  August,  1789,  the 
General  Assembly  showed  its  first  sign  of  return- 
ing reason  by  suspending  the  operation  of  the 
tender  law.  It  followed  this  by  repealing  the 
statute  of  limitations,  because  of  the  depreciation 
in  the  value  of  paper  money,  and  by  extending 
the  time  allowed  for  the  redemption  of  mortgages 
from  five  to  twelve  years.     Finally,  in  October,  it 


THE  RHODE  ISLAND  PAPER  BANK  29 

repealed  as  much  of  the  Paper  Bank  act  as  made 
the  bills  a  tender  at  par,  and  debtors  were  author- 
ized to  substitute  property,  at  an  appraised  value, 
for  money  in  discharge  of  debts.  The  act  which 
effected  the  repeal  fixed  the  value  of  the  paper 
bills  at  fifteen  to  one.     This  was  the  end. 

Throughout  this  entire  struggle  to  make  money 
valuable  by  statute,  by  calling  it  a  dollar  and  say- 
ing that  it  represented  two  dollars'  worth  of  land, 
the  bills  had  remained  almost  exclusively  in  the 
hands  of  their  first  takers.  No  one  else  was  found 
who  would  receive  the  money,  save  those  whom 
the  State  compelled  to  take  it,  or  to  forfeit  their 
just  claims.  Absolutely  nobody  had  benefited  by 
the  experiment  except  the  State,  which  had  got 
rid  of  a  large  portion  of  its  debt  by  dishonestly  re- 
fusing to  keep  its  obligations.  Industry  and  trade 
of  all  kinds,  as  well  as  the  State's  good  name,  had 
suffered  incalculable  injury,  and  the  State's  ma- 
terial progress  had  been  retarded  so  seriously  that 
it  required  many  years  to  regain  what  had  been 
lost.  The  deluded  people  who  borrov/ed  of  the 
bank  on  their  land  as  collateral  realized  their  de- 
sire of  having  more  money  in  their  pockets;  they 
realized  the  dream,  cherished  by  the  believers  in 
'"'■  cheap  money  "  in  all  lands  and  at  all  times,  of  a 
larger  ;?er  capita  currency  in  which  they  should 
share,  but  they  very  soon  found  out  that  none  of 
the  blessings  which  they  had  so  fondly  imagined 
would  follow  possession  were  destined  to  appear. 
What  was  gained  by  having  plenty  of  money  if  it 


30       CHEAP-MONEY  EXPERIMENTS 

could  not  be  used  in  payment  of  debts,  if  nothing 
could  be  bought  with  it  save  at  greatly  advanced 
prices,  and  if  it  were  to  become  less  and  less  val- 
uable as  time  went  on  ? 

They  began  their  experiment  with  a  firm  belief 
that  they  could  compel  capitalists  to  share  their 
wealth  with  them  by  exchanging  their  hated  dear 
money  for  their  own  cheap  money  on  equal  terms, 
but  they  soon  discovered  that  all  the  power  of  a 
State  government,  exerted  with  unscrupulous  zeal, 
was  not  sufficient  to  compel  a  man  to  employ  his 
capital  in  ways  against  his  will.  They  luight  pre- 
vent him  from  collecting  usury,  but  they  could 
not  interfere  with  him  when  he  chose  to  keep  his 
capital  to  himself,  and  to  make  no  use  of  it  in 
trade,  either  by  buying,  or  selling,  or  lending. 
Every  '*  cheap-money  "  experiment  that  has  ever 
been  made  has  resulted  in  precisely  the  same  de- 
monstration, and  the  same  fate  awaits  all  those 
of  the  future. 


CHAPTER  IV 
MODERN  CHEAP -MONEY  PANACEAS 

IN  the  two  chapters  immediately  preceding  the 
present  one  we  have  set  forth  the  details  of 
two  historical  schemes  for  making  money  cheap 
and  plentiful,  that  of  the  Land  Bank  in  England 
in  the  latter  part  of  the  seventeenth  century  and 
that  of  the  Paper  Bank  in  Rhode  Island  at  the 
close  of  the  Revolutionary  War.  We  intend  now 
to  consider  some  of  the  plans  with  similar  purpose 
that  are  put  forth  by  the  leaders  in  various  kinds 
of  cheap-money  movements  which  have  gained 
headway  in  the  Western  States  during  the  last 
year  or  more.  With  this  consideration  in  view 
we  have  been  making  a  collection  of  plans  as  they 
have  been  advanced  from  time  to  time  in  speeches 
and  interviews.  We  append  the  more  striking  of 
these,  giving  the  exact  language  in  each  instance, 
numbering  them  for  convenience  of  reference  but 
withholding  the  names  of  the  originators  in  order 
that  our  subsequent  remarks  may  be  free  from 
all  appearance  of  personality. 

31 


32  CHEAP-MONEY  EXPEEIMENTS 

1.  I  am  not  stuck  on  silver  and  gold  as  circulating  me- 
diums. A  piece  of  paper  is  my  ideal.  Geologists  have 
tilings  so  fine  that  they  can  estimate  the  quantities  of  silver 
and  gold  in  the  mountains,  and  the  Government  should 
issue  silver  certificates  to  an  amount  equivalent  to  that 
estimate.  It  would  be  far  safer,  as  it  would  be  easy  for  a 
foreign  nation  to  capture  the  coin  in  the  treasury  vaults  at 
Washington;  but  the  mountains  they  could  not  remove, 
even  by  all  the  faith  they  could  muster. 

2.  People  do  not  care  whether  a  silver  dollar  contains 
seventy  cents'  worth  of  silver  or  not,  so  long  as  it  will  buy 
a  dollar's  worth  of  sugar  or  coffee.  For  fifteen  of  these 
[holding  up  a  copper  cent  j  a  man  can  buy  copper  enough  to 
make  two  dollars,  yet  it  is  good  money. 

3.  We  [speaking  for  the  Farmers'  Alliance]  believe  in  the 
people  making  their  own  money ;  we  believe  in  the  Govern- 
ment, which  is  simply  the  agent  of  the  people,  issuing  their 
money  directly  to  them  without  going  around  Robin  Hood's 
barn  to  find  them. 

4.  If  the  people  had  twice  as  much  currency  in  their 
pockets  as  now,  their  prosperity  would  be  greatly  increased. 

5.  I  am  in  favor  of  more  currency.  Wo  have  n't  enough 
currency  per  capita  to  do  the  bvisiness  of  the  country.  If 
we  cannot  increase  the  currency,  I  think  somebody  ought 
to  issue  more  collaterals.  There  is  usually  enough  money 
if  a  man  has  the  collateral. 

6.  Under  a  free-coinage  system  I  think  j)eople  who  have 
small  quantities  of  silver  would  be  more  apt  to  deal  directly 
with  the  Government,  and  the  coin,  flowing  out  of  the  mints 
to  them  in  smaller  individual  amounts,  would  quickly  find 
its  way  into  the  channels  of  ordinary  trade.  The  rich  specu- 
lators who  now  do  most  of  the  handling  of  the  metal  take 
their  big  sums  that  they  receive  from  the  Government,  and 
use  them  in  further  speculation.  Little  enough  of  it  ever 
gets  out  in  petty  simis  for  circulation  among  the  masses  of 
the  people. 


MODEEN  CHEAP-MONEY  PANACEAS    33 

7.  My  monetary  system  eliminates  from  money  both  the 
element  of  intrinsic  value  and  the  power  to  limit  or  control 
the  value  of  things  of  use.  I  propose  that  the  Government 
only  shall  issue  money  for  the  public  use.  In  order  to  do 
this  I  would  have  it  issue  immediately  500,000,000  new 
treasury  notes  of  the  denomination  of  one  dollar  each.  So 
much  of  this  amount  as  was  necessary  the  Government 
should  loan  to  the  people,  ten  per  cent,  of  each  loan  to  be 
paid  back  each  year,  nine  per  cent,  to  be  applied  to  the  ex- 
tinction of  the  principal,  and  one  per  cent,  covering  the  in- 
terest. In  that  way  it  would  be  possible  to  redeem  every 
mortgaged  farm  in  the  land  within  fifteen  years. 

8.  Banks  should  not  be  allowed  to  issue  notes.  These 
should  be  printed  and  put  out  by  the  Government.  The 
tariff  should  be  reduced  till  there  is  a  deficit  in  the  treasury, 
and  then  greenbacks  should  be  printed  and  issued  to  pay 
all  claimants.  These  should  not  be  redeemable  in  metal 
money.  Each  bill  should  bear  the  legend:  "One  dollar, 
receivable  for  all  dues  and  dbts."  This  would  make  it  re- 
ceivable for  all  taxes  and  import  duties,  and  a  legal  tender. 
This  would  keep  it  perpetually  at  par. 

9.  Tens  of  thousands  of  our  farmers  have  been  unfortu- 
nate, and  can  never  get  out  of  debt  without  special  relief. 
I  would  enact  a  law  stopping  the  big  interest  they  have 
agreed  to  pay,  and  substituting  a  debt  at  one  per  cent,  in- 
terest. It  would  be  done  in  this  way.  Suppose  I  owe  you 
$5000  and  accumulated  interest  on  my  farm.  This  new 
law  would  direct  you  to  add  the  interest  to  the  principal, 
and  go  to  the  treasury  of  my  county  and  file  the  mortgage  and 
an  abstract  of  the  property,  and  get  a  check  on  the  nearest 
bank  for  the  entire  debt.  That  would  satisfy  you.  Then 
the  county  treasurer  makes  a  draft  on  the  United  States 
treasurer  for  the  money,,  and  gets  it  in  crisp,  new  bills. 
That  satisfies  him.  The  United  States  treasurer  accepts 
the  mortgage  on  the  farm,  —  providing  it  is  worth  the 
amount  of  the  mortgage, —  and  sends  word  to  me  when  the 


34       CHEAP-MONEY  EXPEEIMENTS 

one  per  cent,  interest  is  due.  Is  not  that  simple  ?  It  is  the 
first  news  I  have  had  of  the  transfer  of  the  debt.  That 
ought  to  suit  everybody. 


These  nine  plans  can  be  grouped  into  two  gen- 
eral classes  —  those  which  preserve  for  the  pro- 
posed cheap  money  some  intrinsic  value,  and 
those  which  eliminate  such  value  entirely.  Of 
the  former  it  is  to  be  said  that  they  are  similar  in 
character  to  the  plans  of  the  English  Land  Bank 
and  the  Rhode  Island  Paper  Bank  in  that  they 
propose  the  issue  of  money  on  land  as  security. 
The  proposition  for  issuing  notes  against  the  esti- 
mated amount  of  silver  and  gold  in  a  mountain  is 
of  course  a  proposition  to  issue  them  on  the  value 
of  the  land.  They  could  be  no  more  kept  at  par 
than  the  Rhode  Island  notes  based  on  farm  values 
could  be,  but  would  drop  at  once  to  a  level  of  their 
own,  which  would  inevitably  be  below  the  gold 
standard  of  value.  As  for  the  plans  in  the  second 
group  (those  which  favor  paper  money  with  no- 
thing to  fix  its  value  save  the  Government  stamp), 
they  all  contemplate  a  currency  which  the  author 
of  one  of  the  plans  (No.  8)  says  would  be  "  per- 
petually at  par  " ;  that  is  to  say,  at  par  with  itself. 
This  was  the  peculiarity  of  the  Continental,  the 
Confederate,  and  the  Rhode  Island  paper  money, 
of  the  French  assignats,  and,  in  fact,  of  all  incon- 
vertible paper  money  ever  issued.  It  is  surely 
unnecessary,  in  view  of  unbroken  human  experi- 
ence in  testimony  of  the  folly  of  such  money,  to 


MODERN  CHEAP-MONEY  PANACEAS    35 

enter  into  a  formal  argument  against  it  at  this 
late  day.  We  shall  continue  to  show  its  complete 
failure  in  practice  in  subsequent  articles  upon  ex- 
periments with  it  in  various  countries. 

When  we  come  to  examine  carefully  these  vari- 
ous plans  we  find  that  the  advocates  of  all  of  them 
are  more  or  less  perplexed  as  to  the  methods  by 
which  the  money,  when  it  shall  have  been  made 
plenty  by  act  of  the  Government,  shall  be  got  into 
the  "pockets  of  the  people."  This  is  the  shoal 
upon  which  many  a  fair  cheap-money  panacea  has 
been  wrecked.  The  primal  cause  of  every  cheap- 
money  agitation  is  the  same  —  a  desire  on  the  part 
of  people  who  are  suffering  from  a  scarcity  of 
money  to  possess  more.  They  have  nothing  ad- 
ditional to  offer  in  return  for  more, —  that  is,  mer- 
chandise, or  goods,  or  labor,  or  product  of  any 
kind, —  but  they  imagine  that  the  scarcity  from 
which  they  are  suffering  is  due  to  the  dearness  of 
the  money  itself,  or  to  the  financial  policy  of  the 
Government  in  limiting  the  amount  issued,  or  to 
some  other  cause  than  their  own  inability  to  raise 
more,  either  by  actual  sale  of  something,  or  on 
credit.  When  they  are  asked  how  they  are  going 
to  get  possession  of  a  share  of  the  more  plentiful 
supply,  and  are  held  down  to  a  specific  answer, 
their  ingenuity  is  greatly  taxed,  and  they  turn  to 
their  leaders  for  a  solution  of  the  difficulty.  The 
different  ways  in  which  the  leaders,  whose  plans 
we  have  collected,  have  met  this  demand  furnish 
most  instructive  material  for  study. 


36       CHEAP-MONEY  EXPERIMENTS 

In  the  first  and  second  plans  this  point  is  not 
touched  upon.  In  the  third  the  author  says  he  fa- 
vors issuing  the  money  directly  to  the  people,  which 
seems  to  imply  a  free  and  unlimited  distribution. 
In  the  fourth  plan  the  incontrovertible  assertion 
that  '^  if  the  people  had  twice  as  much  currency  in 
their  pockets  as  now,  their  prosperity  would  be 
greatly  increased"  is  not  accompanied  with  any 
suggestion  as  to  how  this  doubling  process  can 
be  accomplished.  In  the  fifth  —  and  this  point  we 
shall  touch  on  later  —  the  searching  suggestion  is 
dropped  that  perhaps  an  increase  of  collaterals  is 
as  much  needed  as  an  increase  in  currency.  In 
the  sixth  the  curious  idea  is  brought  forward  that 
free  coinage  of  silver  would  put  money  into  the 
pockets  of  the  people  by  enabling  them  to  take 
what  silver  bullion  they  might  happen  to  have  on 
hand  to  the  mints  to  be  coined.  In  the  seventh, 
eiglith,  and  ninth  plans  an  unlimited  issue  of  in- 
convertible paper  by  the  Government  is  advocated 
to  be  loaned  to  the  people  at  one  per  cent.,  some- 
times with  land  security  and  sometimes  with  none 
at  aU. 

Of  the  relief  which  might  come  to  the  people  by 
allowing  them  to  have  their  own  bullion  coined,  it 
is  only  to  be  said  that  it  would  depend  entirely 
upon  the  amount  of  bullion  which  the}'  had  on 
hand  and  of  the  value  of  the  silver  dollars  after 
they  were  coined.  If  the  farmers  of  the  West  have 
bullion  in  considerable  quantities  stored  about 
their  premises,  the  fact  is  one  which  has  not  been 


MODERN  CHEAP-MONEY  PANACEAS    37 

suspected.  Concerning  the  various  plans  for  gov- 
ernment loans  of  paper  money  at  one  per  cent., 
the  same  comment  can  be  made  upon  all  of  them. 
They  would  undoubtedly  put  money  into  the  pock- 
ets of  the  people,  but  what  would  the  money  be 
worth  ?  The  farmers  of  Rhode  Island  had  plenty 
of  money  put  into  their  pockets  in  1789,  but  they 
found  that  they  could  not  buy  anything  with  it 
save  at  heavy  discount,  could  not  use  it  in  pay- 
ment of  mortgages  and  other  debts,  and  that  it 
paralyzed  the  commerce  and  industrj^  of  the  State, 
aud  brought  irreparable  shame  upon  its  honor. 
If  the  Government  of  the  United  States  were  to 
go  into  the  business  of  lending  money  to  the 
farmers  in  return  for  mortgage  security,  as  some 
plans  propose,  or  in  return  for  no  security,  as 
others  suggest,  the  only  results  would  be  that  the 
entire  farm  mortgage  debt  of  the  country  would 
be  unloaded  upon  the  Government,  that  farmers 
and  all  other  people  would  have  a  lot  of  debased 
money  in  their  pockets,  and  that  in  the  end  the 
credit  of  everybody,  includiug  that  of  the  Gov- 
ernment itself,  would  be  undermined,  if  not  com- 
pletely destroyed. 

The  real  need  of  the  times  is  the  one  mentioned 
in  the  fifth  plan;  that  is,  for  more  collaterals. 
"When  the  author  of  that  plan  says  that  "there  is 
usually  enough  money  if  a  man  has  the  collateral," 
he  shows  that  he  has  been  a  close  and  accurate 
observer.  Collateral,  as  defined  by  "The  Century 
Dictionary,"  is  "anything  of  value,  or  representing 

4 


38       CHEAP-MONEY  EXPERIMENTS 

value,  as  bonds,  deeds,  etc.,  pledged  as  security  in 
addition  to  a  direct  obligation."  An  advocate  of 
cheap  money  was  once  going  about  Wall  street 
complaining  of  the  scarcity  of  money,  and  saying 
that  all  existing  industrial,  commercial,  and  finan- 
cial woes  came  from  a  too  small  supply  of  currency. 
When  he  was  told  that  there  was  plenty  of  money 
to  be  borrowed  at  low  rates  of  interest,  he  retorted, 
"Ah,  but  that  is  only  on  first-class  security."  Money 
is  always  obtainable  on  that  kind  of  security,  and 
few  people  are  ever  to  be  found  who  wish  to  loan 
it  on  any  other.  The  man  who  calls  for  more  col- 
laterals means  to  call  for  more  first-class  securities, 
for  upon  no  others  does  any  prudent  man  care  to 
lend  money.  In  other  words,  every  man  who  has 
something  of  value  to  sell,  or  to  lend,  can  get 
money  of  value  in  return.  He  can  compel  no  man 
who  has  money  to  lend  to  lend  it  on  any  other 
than  good  security.  As  the  value  of  the  collateral 
goes  down  the  rate  of  interest  goes  up,  until  it 
reaches  the  prohibitive  point.  If  a  loan  which  has 
been  granted  on  condition  of  interest  and  principal 
being  paid  in  sound  or  "dear"  money  be  repaid, 
under  legal  authority,  in  "  cheap"  money,  the  in- 
evitable effect  is  always  to  make  it  more  difficult 
for  any  one  to  borrow  on  any  except  the  most 
stringent  terms  thereafter;  that  is,  on  the  best 
security,  and  with  principal  and  interest  payable 
in  gold. 


CHAPTER  V 
A  NATION  FOR  A  MORTGAGE 

WE  have  iu  previous  chapters  set  forth  the 
details  of  two  notable  historical  efforts  to 
lighten  the  burdens  of  the  people  and  to  increase 
their  wealth  by  making  money  cheap  and  plenty. 
In  one  the  Land  Bank  experiment  in  England  in 
1G96  was  considered,  and  in  another  the  Rhode 
Island  Paper  Bank  experiment  of  1786.  We 
turned  aside  for  a  moment  from  the  historical 
record  to  consider  some  of  the  modern  cheap- 
money  plans,  in  order  to  enforce  upon  our  readers, 
while  the  English  and  the  Rhode  Island  failures 
were  fresh  in  their  minds,  the  fact  that  these  mod- 
ern plans  sought  to  repeat  in  our  own  times  the 
disastrous  experiments  of  one  and  two  centuries 
ago.  From  that  list  of  modern  plans  we  purposely 
omitted  one  which  may  be  said  to  have  been  the 
inspiring  cause  of  nearly  all  those  which  we  named. 
We  refer  to  the  Land  Loan  scheme  of  Senator 
Stanford  of  California.  This,  in  brief,  is  that  the 
Government  shall  lend  an  unlimited  amount  of 
money  for  twenty  years  at  two  per  cent,  interest 


40       CHEAP-MONEY  EXPERIMENTS 

on  laud  pledged  as  security  at  half  its  value ;  that 
the  value  of  the  land  shall  be  fixed  by  appraisers 
appointed  by  a  land-loan  bureau  in  every  county 
in  which  a  loan  is  applied  for,  their  services  to 
be  paid  by  the  mortgagees;  that  there  shall  be 
no  limit  to  the  amount  of  the  money  issued  as 
loans,  except  the  needs  of  landowners,  and  their 
ability  to  pledge  the  land;  and  that  the  bills 
so  issued  shall  be  receivable  for  all  taxes  and  all 
debts. 

This  is  in  substance  the  Rhode  Island  experi- 
ment over  again,  but  lest  some  one  shall  say  that 
that  experiment  was  made  in  a  State  only,  and 
not  in  a  nation,  and  hence  had  not  the  wealth  of 
the  whole  country  to  guarantee  its  success,  we 
shall  not  rely  upon  it  as  constituting  a  complete 
demonstration  of  the  fallacy  of  Mr.  Stanford's 
ideas.  What  was  attempted  in  Rhode  Island  in 
1786  was  merely  an  imitation,  on  a  small  scale,  of 
what  was  done  in  France  in  1718-20  under  the 
inspiration  of  the  notorious  adventurer  and  gam- 
bler John  Law.  The  history  of  his  famous  per- 
formances  constitutes  so  perfect  an  answer  to  the 
economists  of  Mr.  Stanford's  school  that  we  shall 
make  it  the  subject  of  the  present  chapter  in  our 
series. 

John  Law  was  the  son  of  an  Edinburgh  jeweler 
and  money-changer.  After  a  career  of  gambling, 
dueling,  and  reckless  adventure  in  every  capital  in 
Europe,  he  turned  his  ingenuity  to  the  invention 
of  schemes  of  finance  and  banking,  and  went  about 


A  NATION   FOR   A   MORTGAGE  41  . 

from  capital  to  capital  seeking  acceptance  for  them. 
Having  had  no  success  anywhere  else,  he  appeared 
in  Paris  in  1716,  just  after  the  death  of  Louis  XIV., 
when  the  regent,  the  Duke  of  Orleans,  was  con- 
fronted with  a  national  debt  of  more  than  three 
billions,  which  made  national  bankruptcy  immi- 
nent. He  listened  earnestly  to  Law  when  the  latter 
assured  him  that  the  prosperity  of  a  nation  de- 
pended entirely  upon  the  size  of  its  circulating 
medium ;  that  Holland  with  its  wretched  soil  and 
dangerous  shores  was  the  richest  country  in  the 
world  simply  because  of  its  immense  circulating 
medium ;  and  that  France  by  doubling  its  capi- 
tal would  enormously  increase  its  wealth  and  re- 
sources, pay  off  its  debts,  and  become  the  richest 
nation  in  the  world.  How  could  France  double 
its  capital?  Why,  easily  enough.  All  it  had  to 
do  was  to  establish  a  bank  on  the  basis  of  all  the 
actual  property  of  the  State. 

A  private  bank  which  Law  established  succeeded 
very  well,  its  bills  being  accepted  by  the  Govern- 
ment. It  really  laid  the  foundation  of  credit  in 
France,  since  it  was  the  first  bank  of  circulation 
and  discount.  Its  success  turned  the  heads  of  both 
Law  and  the  regent.  If  with  a  small  capital  they 
could  by  means  of  credit  circulate  a  volume  of 
notes  several  times  the  size  of  the  capital,  what 
might  they  not  do  with  the  whole  of  France  for 
capital!  The  private  bank  was  dissolved  in  1718, 
and  the  Government  established  the  Royal  Bank 
with  Law  as  its  director-general.     He  at  once  be- 


42       CHEAP-MONEY  EXPERIMENTS 

gaii  to  put  into  practice  his  idea  of  uniting  all  the 
wealth  of  France  into  one  great  mass,  and  using 
it  as  a  basis  upon  which  to  issue  an  illimitable  vol- 
ume of  notes.  "  He  had  conceived  the  idea,"  says 
Blanq.ui,  in  his  "History  of  Political  Economy," 
''of  combining  into  one  common  association  all 
the  capitalists  of  France,  and  putting  under  their 
control,  as  a  loan,  all  the  elements  of  public  wealth 
from  landed  property  to  the  uncertain  ventures  of 
colonial  trade.  What  could  be  a  finer  mortgage 
than  France ! " 

As  a  part  of  his  great  "  Company  of  the  West," 
he  included  his  famous  Mississippi  scheme.  The 
Chevalier  La  Salle,  in  his  travels  down  the  Mis- 
sissippi River  to  the  Gulf  of  Mexico,  had  taken 
possession  of  all  the  territory  through  which  it 
flowed  in  the  name  of  the  French  king,  calling  it, 
in  honor  of  Louis  XIV,,  Louisiana.  Law  obtained 
a  concession  of  this  district,  gave  dazzling  ac- 
counts of  its  unlimited  mineral  and  agricultural 
wealth,  and  founded  a  commercial  company  upon 
it  with  a  capital  of  one  hundred  millions,  divided 
into  two  hundred  thousand  shares  of  five  hundred 
francs  each.  Other  trading  companies,  the  Ca- 
nadian, Senegal,  East  Indian,  and  China,  were  also 
taken  into  the  bank  and  each  made  a  "  basis  "  for 
the  issue  of  notes.  Then  one  after  the  other  the 
roj^al  mint,  the  business  of  collecting  the  govern- 
ment taxes,  and  the  receipts  of  the  royal  income 
were  included.  Law's  idea  was  to  get  all  the  re- 
ceipts and  all  the  issues  of  the  nation  into  the 


A   NATION    FOIi   A   iMORTGAGE  43 

same  hands,  and  then  npon  this  vast  basis,  this 
fine  mortgage  of  France,  to  issue  notes  at  will. 

The  shares  of  this  company  were  eagerly 
bought.  He  began  the  issue  of  paper  money 
guaranteed  by  the  Government,  and  based  upon 
the  value  of  all  national  property.  "  Bills  issued 
on  land,''  he  said,  "  are  in  effect  coined  land.  Any 
goods  that  have  the  qualities  necessary  in  money 
may  be  made  money  equal  to  their  value.  Five 
ounces  of  gold  is  equal  in  value  to  £20,  and  may 
be  made  money  to  that  value ;  an  acre  of  land  is 
equal  to  £20,  and  may  be  made  money  equal  to 
that  value,  for  it  has  all  the  qualities  necessary  in 
money."  As  a  beginning,  Law  had  notes  to  the 
amount  of  one  hundred  and  ten  millions  of  pounds 
sterling  struck  off  and  circulated.  They  were  re- 
ceivable in  taxes,  nominally  redeemable  in  coin, 
and  made  a  legal  tender.  A  great  wave  of  instan- 
taneous prosperity  seemed  to  rush  over  France. 
The  parliament  of  Paris,  alarmed  by  the  furor 
which  seized  the  whole  people,  tried  to  check  it 
by  legislation,  but  was  overborne  at  once.  Law 
even  threatened  to  abolish  it  for  presuming  to 
stand  in  his  way.  The  bank  lent  the  king  twelve 
hundred  billions  of  francs  to  pay  off  the  debt. 
An  eye-witness  of  the  scenes  in  Paris,  writing  at 
the  time,  says:  "All  the  town  is  in  convulsion 
over  the  shares ;  the  capital  is  thrown  into  a  kind 
of  state  fever;  we  see  the  debt  diminish  before 
our  eyes  ;  private  fortunes  are  being  made  out  of 
nothing."    From  all  parts  of  France  men  poured 


44       CHEAP-MONEY  EXPEEIMENTS 

into  Paris  to  speculate.  The  street  in  which  the 
bank  was  situated  was  crammed  day  and  night. 
The  shares  rose  to  forty  times  their  value  in  specie 
at  the  time  of  their  issue.  Everybody  seemed  to 
be  getting  richer,  nobody  poorer.  The  bank  con- 
tinued to  pour  forth  paper  money  till  its  issue 
reached  3,071,000,000  francs,  833,000,000  more 
than  it  was  legally  authorized  to  emit.  Its  issue 
of  shares  at  the  extreme  market  value  when  the 
craze  was  at  its  height  was  twelve  billion  francs, 
which  had  been  built  up  on  an  original  issue  of 
less  than  two  millions. 

M.  Thiers,  in  his  account  of  the  situation  at  this 
time,  says : 

The  variations  of  fortune  were  so  rapid  that  stock-jobbers, 
receiving  shares  to  sell,  by  keeping  them  one  single  day 
had  time  to  make  enormous  profits.  A  story  is  told  of  one 
who,  charged  with  selling  some  shares,  did  not  appear  for 
two  days.  It  was  thought  the  shares  were  stolen :  not  at 
all;  he  faithfully  returned  their  value,  but  he  had  taken 
time  to  win  a  million  for  himself.  This  power  which  capital 
had  of  producing  so  rapidly  had  brought  about  a  traffic  ;  peo- 
ple lent  the  funds  by  the  hour,  and  exacted  unprecedented 
rates  of  interest.  The  stock-jobbers  found,  moreover,  a  way 
to  pay  the  interest  demanded  and  to  reap  a  profit  themselves. 
One  could  even  gain  a  million  a  day. 

Law  himself  reaped  a  colossal  fortune  in  paper, 
which  he  turned  into  land  as  fast  as  he  could.  He 
bought  no  less  than  fourteen  titled  estates  in 
France,  a  fact  which  is  cited  as  evidence  that  he 
had  faith  in  his  own  schemes,  for  had  he  been  a 


A   NATION   FOR   A   MORTGAGE  45 

swindler  he  would  have  invested  his  profits  in 
some  other  country. 

Of  course  such  a  condition  of  affairs  could  not 
last.  Scarcely  had  the  whole  system  been  made 
complete  before  the  inevitable  collapse  began  to 
threaten.  People  began  to  sell  their  shares  for 
land,  houses,  coin,  or  anything  that  had  stable 
value.  Prices  rose  enormously,  and  gold  began 
to  be  hoarded.  The  shares  began  to  fall  and  the 
paper  money  to  depreciate.  Then  Law,  like  his  imi- 
tators a  half-century  later  in  Rhode  Island,  began 
to  try  to  save  his  paper  money  from  destruction 
by  edicts  or  forcing  acts.  It  was  forbidden  to 
convert  the  notes  into  gold  or  silver,  and  decreed 
that  they  should  bear  a  premium  over  specie.  It 
was  decreed  that  coin  should  be  used  only  in  small 
payments,  and  that  only  a  small  amount  of  it 
should  be  kept  in  the  possession  of  private  per- 
sons. Any  one  keeping  more  than  400  or  500 
francs  in  specie  was  to  be  fined  10,000  francs.  The 
wearing  of  gems  and  diamonds  was  prohibited. 
Nothing  made  of  gold  was  to  weigh  over  one 
ounce.  Old  specie  was  confiscated,  and  domiciliary 
visits  were  ordered  to  discover  it.  Of  course  these 
signs  of  desperation  only  hastened  the  end.  The 
shares,  which  had  been  fluctuating  wildly,  began 
to  go  down  steadily.  This  was  in  February,  1720, 
less  thaii  two  years  after  the  founding  of  the  bank. 
When  all  the  violent  edicts  failed  to  stop  the  de- 
cline, the  Government  decreed  in  May  that  the 
value  of  the  shares  and  notes  should  be  reduced 


4G       CHEAP-MONEY  EXPERIMENTS 

one  half.  This  was  the  end.  The  great  bubble  col- 
lapsed, for  credit  had  been  completely  destroyed. 
The  bank  stopped  payment,  and  the  whole  nation 
gave  itself  over  to  rage  and  despair.  Law's  life 
was  in  danger,  and  that  of  the  regent  was  threat- 
ened. The  bank  was  abolished ;  its  notes  were  re- 
converted into  the  public  debt,  leaving  it  as  it  was 
when  the  bank  was  established;  Law's  estates 
were  confiscated,  and  by  November  of  1720  not 
a  trace  of  the  bank  or  its  various  companies  re- 
mained. Law  himself  remained  in  France  till  the 
end  of  the  year,  when  he  became  a  wanderer  on 
the  face  of  the  earth,  dying  at  Venice  in  1729 
almost  a  pauper.  ^^Of  all  the  industrial  values 
produced  under  the  hot  atmosphere  of  Law's  sys- 
tem," says  Blanqui,  "nothing  remained  but  ruin, 
desolation,  and  bankruptcy.  Lauded  property 
alone  had  not  perished  in  the  tempest." 

This  is  the  experiment  which  Senator  Stanford 
proposes  should  be  repeated  in  the  United  States. 
It  is  the  same  experiment  which  Rhode  Island 
tried  with  similar  results  in  1786.  It  is  the  same 
experiment  also  which  the  Argentine  Republic  has 
been  trying  within  the  past  five  years,  and  the 
fruits  which  that  unhappy  country  is  now  reaping 
from  it  we  shall  make  the  subject  of  our  next 
chapter. 


CHAPTER  VI 

THE  ARGENTINE 
CHEAP-MONEY  PARADISE 

IN  many  respects  the  experience  through  which 
the  Argentine  Republic  is  passing,  in  an  at- 
tempt to  increase  the  general  prosperity  by  mak- 
ing money  cheap  and  plentiful,  comes  closer  to  the 
American  people  than  any  of  the  similar  efforts  in 
other  countries  which  have  been  described  in  pre- 
vious chapters.  The  government  of  the  Argentine 
Republic  is  closely  modeled  upon  that  of  the  United 
States.  It  is  a  country  of  almost  boundless  natural 
resources,  whose  development  has  been  so  rapid  as 
to  be  almost  without  parallel  in  history,  and  whose 
growth  in  wealth,  prosperity,  and  commercial  im- 
portance has  been  so  nearly  approached  by  no 
other  country  in  the  world  as  by  America.  Its 
people  are  an  energetic,  buoyant,  self-confident 
race,  full  of  pride  in  their  country  and  inclined  to 
the  belief  that  it  is  capable  of  withstanding  any 
strain  that  may  be  put  upon  it.  Yet,  rich  and 
prosperous  as  they  were,  these  people  conceived 
the  idea,  when  a  slight  check  to  their  development 

47 


48  CHEAP-MONEY    EXPERIMENTS 

was  felt  a  few  years  ago,  that  what  they  needed 
in  order  to  attain  the  full  measure  of  their  pros- 
perity was  to  make  money  ''cheap  and  plenty." 
Perceiving  the  importance  of  their  experience  as 
an  object-lesson  for  our  own  country,  bearing  as 
it  does  directly  upon  discussion  and  propositions 
current  here,  we  have  gone  thoroughly  into  the 
matter,  examining  all  available  sources  of  infor- 
mation, and  have  thus  been  able  to  prepare  for 
our  readers  what  we  believe  to  be  the  most  com- 
plete as  well  as  accurate  account  yet  published. 

In  1873  there  was  established  in  the  capital  city 
of  the  Argentine  Republic,  Buenos  Ayres,  the 
Hypothecary  or  Mortgage  Bank,  whose  main  ob- 
ject was  to  make  loans  on  all  kinds  of  landed 
property.  The  principles  upon  which  these  loans 
were  to  be  made  were  much  the  same  as  Senator 
Stanford  is  advocating  as  a  basis  for  similar  loans 
by  the  United  States  Government.  Any  person 
owning  landed  property  in  the  province  could  go 
to  the  bank  and  secure  a  loan  for  half  its  value, 
which  was  to  be  fixed  by  the  bank's  appraisers. 
The  bank  gave  him  a  mortgage-bond,  called  a 
cedula,  which  was  to  run  for  twenty-four  years,  at 
from  six  to  eight  per  cent,  interest,  two  per  cent, 
amortization,  and  one  per  cent,  commission.  The 
interest  was  payable  quarterly,  and  there  were 
coupons  attached  for  the  twenty-four  years.  The 
cedulas  were  issued  in  alphabetical  series,  begin- 
ning with  A  and  running  to  P.  They  were  bought 
and  sold  on  the  Bolsa  or  Stock-exchange,  and  from 


THE  AEGENTINE  CHEAP-MONEY  PARADISE  49 

their  first  issue  became  an  important  element  in 
speculation.  The  first  issue  of  series  A  was  between 
$13,000,000  and  $14,000,000,  the  Ai-gentine  dollar 
being  about  ninety-six  cents  of  our  money,  being 
based  upon  the  unit  of  the  French  monetary  sys- 
tem. These  remained  at  par  for  only  a  short  time 
after  issue.  They  were  quickly  followed  by  others, 
until  series  A  closed  with  a  total  issue  of  $27,394,- 
000.  Then  came  series  B  with  an  issue  of  $1,092,- 
000,  series  C  with  $813,000,  series  D  with  $288,000, 
all  at  seven  per  cent.  Then  came  series  E  with  a 
total  issue  of  $15,830,000  at  six  per  cent.,  and  F 
with  a  total  issue  of  $6,100,000  at  seven  per  cent. 
Ten  years  after  the  bank's  establishment  over  $100,- 
000,000  of  these  cedulas  had  been  issued,  all  based, 
be  it  remembered,  upon  the  landed  property  of  a 
single  province.  They  had  from  the  outset  been 
used  for  speculative  purposes,  and  every  year  this 
use  became  more  wild  and  reckless.  A  ring  was 
formed  between  directors  of  the  bank  and  cer- 
tain favored  brokers  for  the  absolute  control  of 
the  successive  issues.  No  one  could  obtain  con- 
cession for  a  loan  who  did  not  make  application 
through  these  brokers,  and  in  order  that  all  the 
members  of  the  ring  might  reap  their  share  of 
the  profit,  the  value  of  the  property  upon  which 
the  loans  were  placed  was  raised  to  extravagant 
figures. 

The  fictitious  prosperity  which  the  Hypothecary 
Bank  brought  to  Buenos  Ayres  infected  the  entire 
republic,  and  in  1884  Congress  passed  a  law  an- 
5 


50  CHEAP-MONEY  EXPERIMENTS 

nexing  a  National  Hypothecary  Bank  to  the  Na- 
tional Bank,  which  was  the  fiscal  agent  of  the 
Government  and  of  all  the  provinces  except  Bue- 
nos Ayres.  The  issue  of  cedulas  on  the  landed 
jH-operty  of  the  nation  was  authorized,  for  fifty 
per  cent,  of  its  value,  at  interest  from  six  to  eight 
per  cent.,  with  two  per  cent,  amortization  and  one 
per  cent,  commission,  no  single  loan  to  exceed 
$250,000,  and  all  payable  at  the  end  of  twelve 
years.  The  issue  of  cedulas  was  at  first  limited  to 
$40,000,000,  but  this  was  extended  from  time  to 
time  so  that  in  November,  1890,  six  years  after  the 
National  Bank  began  the  experiment,  it  had  out 
no  less  than  $204,000,000  in  gold,  all  bearing  inter- 
est. The  Buenos  Ayres  Bank  had  increased  its 
issue  of  cedulas  so  that  at  the  same  date  it  had  no 
less  than  $330,000,000,  but  these  were  in  paper, 
making  the  grand  total  of  money  which  had  been 
loaned  upon  land  in  the  republic  during  seventeen 
years  $534,000,000,  or  $140  for  every  man,  woman, 
and  child. 

When  the  National  Bank  went  into  the  hypothe- 
cary business  in  1884  paper  money  was  at  par  with 
gold.  Several  severe  checks  to  the  national  pros- 
perity were  felt  during  that  year.  Cholera  made 
necessary  a  rigorous  quarantine  against  Mediter- 
ranean steamers  and  checked  immigration.  Heavy 
floods  during  the  fall  delayed  the  shipment  of 
crops  from  the  interior  to  the  seaboard.  A  new 
Government  loan  of  $90,000,000  was  to  be  placed ; 
but  the  European  market,  which  was  expected  to 


THE  ARGENTINE  CHEAP-MONEY  PARADISE  51 

take  $10,000,000  of  it,  was  so  nearly  sated  with 
Argentine  investments  of  one  kind  or  another 
that  it  declined  to  take  more  than  $3,500,000. 

In  January,  1885,  a  run  began  upon  the  Provin- 
cial Bank  of  Buenos  Ayres,  and  compelled  it  to 
suspend  specie  payments;  whereupon  the  Presi- 
dent of  the  republic  declared  the  national  currency 
a  legal  tender.  Gold  rose  at  once  to  17  per  cent, 
premium,  and  then  to  20  per  cent.  In  February 
it  had  reached  33  per  cent.,  and  it  continued  to  rise 
steadily  till  at  one  time  it  was  at  350  per  cent. ; 
that  is  to  say,  $450  in  paper  was  worth  only  $100 
in  gold.  From  the  moment  that  the  gold  stan- 
dard was  abandoned,  the  demand  for  more  paper 
money  began  to  be  heard,  and  it  was  poured  out 
by  the  Grovernment  in  almost  unlimited  volume. 
Under  the  pretense  of  creating  a  sounder  financial 
system  and  securing  a  more  stable  currency,  a  law 
was  passed  in  November,_1887,  establishing  a  sys- 
tem of  State  Banks,  forty  in  number,  similar  to 
our  National  Banks.  These  started  with  a  capital 
of  $350,000,000,  and  began  to  issue  paper  money, 
not  being  required,  as  our  banks  are,  to  be  able  at 
all  times  to  redeem  their  notes  with  gold. 

When  the  premium  on  gold  had  reached  40 
per  cent.,  the  Government  took  the  position  that 
the  increase  was  a  trick  of  the  brokers,  and 
not  in  any  way  an  outcome  of  currency  infla- 
tion, and  issued  a  decree  allowing  the  banks  to 
issue  currency  practically  without  limit.  At  the 
same  time   the   Government,   to   satisfy   the  de- 


52       CHEAP-MONEY  EXPERIMENTS 

mand  for  gold,  and  to  i3rove  its  belief  in  its  own 
contentions,  threw  $30,000,000  of  its  gold  re- 
serves on  the  market.  The  gold  premium  con- 
tinued to  rise  with  no  perceptible  cheek,  and  as  it 
rose  the  banks  poiu-ed  out  more  and  more  paper 
money  in  a  frenzied  attempt  to  check  its  upward 
flight. 

It  was  discovered  after  a  time  that,  through 
trickery,  there  were  several  millions  more  of  this 
irredeemable  paper  money  in  circulation  than  had 
been  supposed.  A  provision  of  the  national  bank- 
ing law  required  that  all  banks  reorganizing  under 
it  should  withdraw  and  cancel  their  old  notes  when 
they  put  their  new  ones  in  circulation.  Several 
banks,  in  collusion  with  dishonest  officials,  vio- 
lated this  requirement,  and  kept  a  large  part  of 
their  old  issue  in  circulation  with  the  new.  At 
one  time  the  amount  of  this  fraudulent  money, 
based  on  nothing  whatever,  amounted  to  $60,000,- 
000.  Some  of  this  was  afterward  destroyed,  but 
the  latest  official  estimate  put  the  amount  still  in 
circulation  at  over  $35,000,000.  As  the  latest  at- 
tainable total  of  the  regular  paper  issue  of  the 
banks  places  it  at  $345,000,000,  the  grand  total  of 
paper  money  in  circulation  in  March  of  last  year, 
worth  about  25  cents  on  a  dollar,  was  $380,000,- 
000,  all  irredeemable,  and  decreasing  in  value 
every  day.  This  was  a  per  capita  circulation  of 
$100  for  every  man,  woman,  and  child  in  the  re- 
public. That  ought  certainly  to  have  put  "  plenty 
of  money  in  the  pockets  of  the  people,"  for  $100 


THE  ARGENTINE  CHEAP-MONEY  PAEADISE  53 

is  the  highest  sum  per  capita  our  wildest  cheap- 
money  advocates  have  ever  demanded. 

With  the  entry  of  the  National  Bank  into  the 
business  of  loaning  money  on  land,  the  vs^hole 
country  plunged  into  a  wild  debauch  of  specula- 
tion, which  closely  resembled  that  through  which 
France  passed  when  the  same  financial  experiment 
was  made  under  John  Law's  inspiration,  as  de- 
scribed in  the  preceding  chapter.  All  kinds  of 
property  acquired  a  fictitious  value,  and  were 
made  the  basis  for  loans  at  that  valuation.  The 
Government,  departing  with  complete  abandon 
from  all  the  limitations  of  legitimate  govern- 
ment, helped  on  the  popular  furor  by  giving  its 
aid  and  sanction  to  all  kinds  of  mushroom  bank- 
ing, b^^ilding,  and  colonization  enterprises  de- 
signed to  ''boom"  the  value  of  property  and 
increase  its  loanable  capacity.  The  country  was 
sprinkled  all  over  with  banks  pouring  out  mil- 
lions of  paper  money  which  could  never  be  re- 
deemed, and  thickly  studded  with  inflated  joint- 
stock  companies  with  millions  of  capital  on  paper, 
whose  business  it  was  to  get  from  the  banks  loans 
for  many  times  the  real  value  of  the  property 
upon  which  they  were  based.  When  the  banks 
had  exhausted  all  their  capital  in  loans,  the  Gov- 
ernment, assuming  their  indebtedness,  gave  them 
millions  of  gold  with  which  to  continue  the  issue 
of  cedulas.  The  business  of  speculating  in  gold 
became  enormously  profitable,  and  private  banks 
made  fortunes.     Men  made  10  per  cent,  per  week 


54  CHEAP-MONEY  EXPERIMENTS 

in  the  business,  and  20  to  24  per  cent,  per  annum 
was  the  usual  profit.  A  Bank  of  Construction 
was  conceived  and  put  in  operation  by  an  unscru- 
pulous speculator,  which,  in  collusion  with  dis- 
honest Government  officials,  bought  vast  amounts 
of  property,  improved  it,  obtained  exaggerated 
loans  upon  it,  and  sold  it  in  such  dishonest  ways 
that  the  interest  on  the  loans  could  never  be  col- 
lected. The  speculator  made  a  colossal  fortnne ; 
the  stock  of  his  bank  went  to  enormous  figures  on 
the  Bolsa,  but,  when  the  tide  turned,  fell  100  points 
in  a  single  day,  carrying  ruin  to  hundreds  of  men 
who  fancied  themselves  rich. 

Many  of  the  early  cedulas  had  been  sent  abroad, 
and  their  ready  sale  in  London,  Paris,  and  Berlin 
had  encouraged  their  further  issue.  About  $15,- 
000,000  in  all  were  taken  abroad,  and  more  would 
have  been  bought  had  not  the  European  market 
been  flooded  with  Argentine  loans  between  1881 
and  1890.  These  were  instituted  or  backed  by  the 
Argentine  government,  and  consisted  chiefly  of 
loans  either  to  the  Government  or  to  provinces  or 
to  cities.  They  were  for  nearly  every  conceivable 
purpose — railways,  harbors,  street-paving,  public 
buildings,  school-houses,  markets,  tenement-houses, 
bridges,  theaters,  hospitals,  boulevards,  public 
sqnares,  and  drainage.  In  December,  1889,  the 
aggregate  of  these  loans,  taken  largely  in  England, 
was  over  $122,000,000  for  the  republic  and  over 
$193,500,000  for  the  provinces,  and  the  total  amount 
of  gold  which  had  to  be  exported  annually  from 


THE  ARGENTINE  CHEAP-MONEY  PARADISE  55 

the  Argentine  Republic  to  pay  the  interest  on  its 
foreign  indebtedness,  and  dividends  on  railway, 
bank,  and  other  stocks  held  abroad,  was  over 
$75,000,000.  With  a  foreign  debt  of  $315,500,000, 
there  had  been  accumulated  at  the  close  of  1889 
an  internal  national  debt  of  $207,000,000,  and  an 
internal  provincial  debt  of  $44,000,000,  making 
at  the  close  of  that  year  a  grand  total  debt  of 
$566,500,000.  This  has  since  been  increased  to 
$772,500,000.  As  the  population  of  the  republic  is 
about  3,800,000,  the  debt  is  over  $203  for  every 
inhabitant. 

It  is  small  wonder  that  under  this  mountain  of 
debt  the  National  Government  is  bankrupt,  hav- 
ing neither  money  nor  credit,  and  that  it  anti- 
cipates a  deficit  for  the  current  year  of  over 
$17,000,000.  The  provincial  deficit  for  the  cur- 
rent year  is  estimated  at  between  $4,000,000  and 
$5,000,000,  making  a  probable  deficit  in  the  whole 
republic  of  nearly  or  quite  $22,000,000. 

Affairs  have  been  going  from  bad  to  worse  since 
the  crisis  of  1890.  Credit  practically  collapsed  in 
the  spring  of  that  year.  After  that  time  the  pro- 
vincial banks  were  not  able  to  meet  their  obliga- 
tions. The  lands  upon  which  loans  were  based 
became  unsalable,  cedulas  dropped  to  50  and 
even  35  cents  on  the  dollar,  which  was  equivalent 
to  13  and  9  cents  respectively  in  gold.  The  paper 
dollar  was  worth  about  25  cents.  The  Provincial 
Bank  of  Buenos  Ayres,  which  was  the  savings- 
bank  of  the  working-classes,  stopped  paying  its 


56       CHEAP-MONEY  EXPERIMENTS 

obligations  in  1890,  and  the  National  Bank  passed 
its  dividend.  A  revolution  broke  out,  and  though 
the  Government  quelled  it  the  President  was  forced 
to  resign. 

Investigations  instituted  by  the  new  government 
into  the  condition  of  the  banks  revealed  astound- 
ing rottenness  and  corruption.  The  whole  power 
of  the  Government  was  exerted  for  several  months 
to  prevent  the  National  Bank  and  the  Provincial 
Bank  of  Buenos  Ayres  from  being  publicly  de- 
clared insolvent,  but  on  April  8,  1891,  the  Presi- 
dent gave  up  the  struggle  and  issued  a  formal 
decree  for  the  liquidation  of  both,  all  payments 
being  suspended  till  June  1.  The  time  was  sub- 
sequently extended  twenty  days  by  Congress,  and 
then  extended  indefinitely. 

This  was  the  end,  and  the  wreck  of  the  banks 
was  complete.  In  1886  the  National  Bank  had 
a  capital  of  £10,000,000  sterling,  and  the  Pro- 
vincial Bank  one  of  £8,000,000  sterling.  Not 
a  penny  of  the  latter  remained.  The  National 
Bank  had  lost  £8,800,000  of  its  £10,000,000, 
and  owed  the  Government  £14,000,000,  These 
two  banks  had  lost,  therefore,  during  five 
years'  experience  with  cheap  money  based  on 
landed  property,  about  £30,000,000  sterling,  a 
sum  more  than  double  the  capital  of  the  Bank 
of  England, 

When  the  collapse  came  the  nation  gave  itself 
over,  as  France  had  done  two  centuries  earlier,  to 
rage  and  despair.     Men  who  were  believed  to  be 


THE   ARGENTINE  CHEAP-MONEY  PARADISE  57 

worth  millions  found  themselves  paupers.  One 
man  who  had  been  worth  $20,000,000,  which  he 
had  accumulated  during  a  lifetime's  devotion  to 
honest  industry,  but  who  had  been  tempted  to 
venture  it  in  speculation,  lost  every  dollar.  He 
had  just  completed  the  building  of  a  house  of 
palatial  magnificence,  costing  $180,000,  but  had 
never  entered  it,  when  the  crisis  came,  and  it  was 
taken  to  pay  his  debts.  A  United  States  minister 
to  a  South  American  government,  who  was  in 
Buenos  Ayres  at  the  time,  thus  describes  the  con- 
dition of  the  nation: 

In  six  months  the  people  have  passed  from  commercial 
activity  and  enthusiasm  to  depression ;  from  happiness  to 
misery;  from  confidence  to  despair.  They  have  taken  a 
Niagara  plunge,  from  which  they  will  not  recover  in  a  gen- 
eration. The  worst  of  the  scheme  was  that  it  offered  iiTe- 
sistible  temptation  to  bribery.  It  made  it  possible  for  any 
man  who  owned  real  estate  to  get  almost  any  qiiantity  of 
money,  if  he  would  only  swear  falsely.  An  acquaintance  of 
mine  had  a  nice  farm  there  which  he  valued  at  $15,000.  The 
law  would  give  him  a  loan  to  one  half  of  the  value  —  that 
value  to  be  fixed  by  the  official  appraisers.  He  "  saw"  the 
appraisers,  and  he  obtained  a  loan  of  Government  money 
—  eedula  —  amounting  to  $250,000,  the  maximum  loan  per- 
mitted by  law  to  one  person.  Think  of  it !  And  the  money 
was  indorsed  by  the  Barings,  the  great  London  bankers ! 
Of  course  the  appraisers  got  half  of  it,  but  the  people  have 
it  to  pay.  And  they  are  now  in  debt  more  than  $100  for 
every  man,  woman,  and  child — hopelessly  bankrupt. 

Mr.  E.  L.  Baker,  the  United  States  consul  at 
Buenos  Ayres,  to  whose  valuable  reports  we  are 


58       CHEAP-MONEY  EXPERIMENTS 

indebted  for  niucli  of  the  iuf ormatiou  contained  in 
this  chapter,  says  under  date  of  November  17, 1890 : 

The  collapse  has  come,  and  come  with  a  vengeance.  Lands 
unsalable  at  any  price ;  national  banks  gutted  and  left 
without  a  cent  in  their  strong  boxes ;  stock  companies  with 
fraudulent  entries  in  their  records  and  without  anything  to 
show  for  the  pretensions  they  set  up ;  merchants  unable  to 
meet  their  liabilities  in  bank;  notes  protested  and  exten- 
sions granted;  the  general  business  at  a  standstill;  the 
banks  hesitating  to  diseouut ;  and  nobody  able  to  say  whom 
it  is  safe  to  trust  —  such  is  the  picture  which  the  country 
presents  to-day.  .  .  .  Every  business,  every  industry,  every 
new  enterprise  feels  and  suffers  from  the  tremendous  reac- 
tion which  has  taken  place.  Everybody  is  confounded  and 
stands  aghast,  looking  at  the  stick  which  but  yesterday,  as 
it  were,  was  a  flaming  rocket.  .  .  .  The  truth  is  the  Ai'gen- 
tine  Republic  is  suffering  from  a  paralysis  of  credit,  .  .  . 
The  "fool's  paradise"  in  which  the  Argentine  people  have 
been  living  for  the  last  few  years  must  be  wiped  out  of  ex- 
istence. Inflation  must  give  place  to  "hard  pan."  ...  It 
has  been  the  general  boast  among  those  who  were  pushing 
on  the  "boom  "that  this  was  an  "exceptional  country,"  and 
that  the  ordinary  laws  of  trade,  currency,  and  banking,  how- 
ever requisite  to  be  followed  in  such  countries  as  England 
or  the  United  States,  had  no  significance  or  applicability  in 
the  Argentine  Republic.  Here,  it  was  insisted,  all  manner 
of  violations  of  economic  principles  could  be  practised  with 
impunity,  and  the  country  would  flourish  by  the  outrage. 
The  present  prostrate  condition  of  both  public  and  private 
credit  shows  the  inherent  fallacy  of  such  an  assumption.  I 
only  fear  that  the  country  will  for  a  long  time  have  to  walk 
in  the  valley  of  humiliation  and  endure  a  protracted  period 
of  business  and  financial  depression  before  it  will  again  be 
able  to  hold  up  its  head  and  present  that  buoyant  and  tri- 
umphant look  which  it  has  heretofore  so  proudly  worn. 


THE  ARGENTINE  CHEAP-MONEY  PAEADISE    59 

This  is  the  experiment  which  men  imbued  with 
Senator  Stanford's  ideas  are  seeking  to  have  the 
United  States  undertake.  They  are  advocating  it 
with  precisely  the  same  kind  of  talk  which  Mr. 
Baker  quotes  as  having  been  heard  in  the  Argen- 
tine Republic.  They  are  calling  the  United  States 
an  "exceptional  country"  which  is  so  great  and 
prosperous  that  it  can  defy  not  merely  economic 
laws,  but  the  teaching  of  all  human  experience. 
The  consequences  of  the  Argentine  experiment 
were  felt  not  only  in  that  republic,  but  they  con- 
vulsed the  financial  centers  of  three  great  Eu- 
ropean countries  and  virtually  ruined  the  first 
banking  house  of  England.  The  effect  was  so  se- 
verely felt  in  this  country  that  a  panic  was  im- 
minent nearly  every  day  for  several  weeks,  while 
all  branches  of  trade  suffered  a  mysterious  and 
numbing  paralysis. 

In  the  gain  or  loss  of  one  race  all  the  rest  have  equal  claim, 

says  Lowell,  and  of  nothing  is  this  more  true  than 
of  the  observance  by  a  nation  of  the  gi'eat  laws  of 
common  honesty  and  fair  dealing  which  lie  at  the 
foundation  of  all  economic  science. 


CHAPTER  VII 

THE   SUBTREASURY 
CHEAP-MONEY  PLAN 

THE  subtreasiiry  scheme  of  the  Farmers'  Alli- 
ance is  in  many  respects  the  most  extreme 
form  in  which  the  cheap-money  delusion  in  this 
country  has  manifested  itself.  It  is  so  extreme, 
in  fact,  that  many  of  the  Alliance  leaders  have 
refused  from  the  outset  to  give  it  their  approval, 
and  others  of  them  who  at  first  viewed  it  with 
favor,  after  examination  and  discussion  of  its 
provisions  have  withdrawn  their  approval.  At 
first  it  made  great  headway  in  the  South,  but 
earnest,  intelligent,  and  courageous  exposure  of 
its  dangerous  fallacies  by  leading  politicians  and 
newspapers  has  so  far  educated  the  people  upon 
the  economic  principles  involved  that  it  has  been 
losing  ground  perceptibly  during  the  past  year. 
A  veritable  campaign  of  education  has  been  made 
in  several  Southern  States,  with  this  scheme  as 
the  text  of  public  discussion,  and  the  beneficial 
results  afford  a  striking  illustration  of  the  high 
patriotic  service  of  courage  and  conviction  in 
politics  and  journalism. 

60 


THE  SUBTREASURY  CHEAP-MONEY  PLAN     61 

The  subtreasury  scheme  made  its  appearance  in 
the  Fifty-first  Congress,  when  a  bill  embodying  its 
principles  was  introduced  in  both  houses,  having 
been  prepared  by  the  National  Legislative  Com- 
mittee of  the  Farmers'  Alliance.  Briefly  summed 
up,  it  provided  for  the  appropriation  by  the  Gov- 
ernment of  $50,000,000  to  be  used  for  the  erection 
of  warehouses  in  various  parts  of  the  country  for 
the  storage  of  cotton,  wheat,  oats,  corn,  and  to- 
bacco. Every  county  which  had  an  annual  pro- 
duction of  these  staples  exceeding  $500,000  in  gross 
value  was  to  be  entitled  to  a  warehouse.  A  peti- 
tion was  to  be  sent  to  the  Secretary  of  the  Treasury 
asking  for  its  establishment,  accompanied  by  the 
title  of  a  suitable  site  to  be  given  to  the  Govern- 
ment. The  Secretary  of  the  Treasury  was  to  appoint 
a  manager,  who  should  give  bonds  for  the  faithful 
performance  of  his  duties,  and  should  receive  a 
salary  of  not  less  than  $1000  and  of  not  more  than 
$2500,  proportionate  to  the  business  done.  Any 
owner  of  cotton,  wheat,  corn,  oats,  or  tobacco  might 
take  his  crop  to  the  nearest  warehouse,  deposit  it, 
and  receive  in  return  eighty  per  cent,  of  its  mar- 
ket value  in  treasury  notes,  the  manager  deciding 
what  that  market  value  should  be.  These  treasury 
notes  were  to  be  specially  issued  for  this  purpose 
by  the  Secretary,  no  note  to  be  less  than  $1  nor 
more  than  $1000,  to  be  legal  tender  for  all  public 
and  private  debts,  and  good  as  part  of  the  lawful 
reserve  of  national  banks.  The  manager  was  to 
give  a  receipt  for  every  deposit  of  produce,  show- 


62       CHEAP-MONEY  EXPERIMENTS 

ing  its  amount,  grade,  or  quality,  value  at  date  of 
deposit,  and  amount  advanced  upon  it,  with  rate 
of  interest  one  per  cent,  per  annum,  and  with 
insurance,  weighing,  warehousing,  classing,  and 
other  charges  deducted.  These  receipts  were  to 
be  negotiable  by  indorsement.  Produce  deposited 
might  be  redeemed  at  any  time  by  a  return  of  the 
receipt  and  money  advanced  on  interest,  and  the 
payment  of  all  warehousing  charges.  The  money 
returned  was  to  be  destroyed  by  the  Secretary  of 
the  Treasury.  If  there  were  no  redemption  of  a 
deposit  within  twelve  months,  a  sale  was  to  be  or- 
dered for  the  reimbursement  of  the  Grovernraent. 
Let  us  see  how  this  would  work  in  practice. 
The  warehouse  managers,  who  are  to  decide  upon 
the  market  price  of  the  produce,  would,  in  nearly 
all  instances,  be  appointed  through  political  in- 
fluence, which  is  tantamount  to  saying  that  they 
would  have  little  expert  knowledge  of  the  duties 
which  they  were  to  perform.  These  men  would 
have  absolute  power  to  decide  upon  the  sums  of 
which  the  Government  was  to  advance  eighty  per 
cent.  There  are,  for  example,  eleven  full  grades 
of  cotton,  and  about  as  many  half  grades,  and 
there  are  about  thirty  grades  of  wheat.  The  man- 
ager must  decide  not  merely  the  grade,  but  the 
price  as  it  is  fixed  in  the  markets  of  the  world  at 
the  time.  If  he  were  an  honest  man  and  fairly 
capable,  the  opportunity  for  serious  blunders  would 
be  very  great.  If  he  were  a  dishonest,  or  ignorant, 
or  prejudiced,  or  malicious  man,  can  any  one  es- 


THE  SUBTREASURY  CHEAP-MONEY  PLAN     63 

timate  tlie  evil  and  injustice  of  which  he  might  be 
capable  ?  He  could  overrate  the  produce  of  all  his 
political  and  personal  friends,  and  undeiTate  that 
of  all  his  enemies  or  rivals,  and  there  would  be  no 
appeal  from  his  decisions.  The  impossibility  of 
having  a  just  and  uniform  basis  for  the  eighty  per 
cent,  advance  in  all  the  warehouses,  or  even  in  one 
of  them,  would  from  the  outset  throw  fatal  doubt 
upon  the  value  both  of  the  treasury  notes  and  of 
the  certificates  of  deposit,  giving  them  at  once  a 
depreciated  and  uncertain  standard. 

The  farmers  who  are  misled  into  favoring  the 
scheme  think  that  they  would  receive  at  once  a 
loan  of  eighty  per  cent,  of  the  full  value  of  their 
crop  at  only  one  per  cent,  interest,  but  they  would 
pay  much  more  than  that.  The  warehousing,  in- 
surance, and  other  expenses  for  cotton,  for  example, 
are  usually  between  eight  and  nine  per  cent,  of  its 
value.  This  would  have  to  be  paid  to  the  Govern- 
ment, and  would  bring  the  interest  up  to  nine  or 
ten  per  cent.  On  wheat  and  other  products  there 
would  be  similar  expenses,  which  would  raise  the 
interest  on  deposits  of  them  to  nearly  or  quite  the 
same  limits.  The  rate  of  interest,  therefore,  is  not 
low  enough  to  be  beneficial  to  farmers  who  hope 
by  this  means  to  pay  off  existing  debts  at  legal 
rates  of  interest.  What  a  farmer  would  receive 
would  be  a  loan  for  one  year  from  the  Government, 
at  the  rate  of  nine  or  ten  per  cent.,  of  a  sum 
amounting  to  four  fifths  of  the  total  value  of  his 
crop,  paid  to  him  in  money  of  uncertain  value. 


64       CHEAP-MONEY  EXPERIMENTS 

For  the  remaiaing-  fifth  he  would  receive  a  certifi- 
cate whose  value  would  depend  entirely  upon  what 
he  got  for  it  in  open  market.  No  buyer  would 
ever  offer  him  the  full  price  as  fixed  by  the  ware- 
house manager,  for  there  would  be  too  many  un- 
certainties about  the  crop's  redemption  to  make 
the  certificate  a  safe  investment  for  anybody. 
They  could  be  negotiated  only  at  a  heavy  discount 
at  best,  and  in  many  instances  would  scarcely  be 
negotiable  at  all. 

If  warehouses  were  established,  there  would  be 
a  tendency  among  all  farmers  seeking  an  imme- 
diate market  to  put  their  produce  into  them.  One 
of  the  advocates  of  the  scheme  estimated  before  a 
committee  of  the  Senate  that  the  deposits  would 
be  so  large  as  to  require  an  addition  of  one  thou- 
sand millions  of  dollars  to  the  currency  in  January 
and  February  of  each  year.  This  flood  of  currency, 
all  of  which  would  be  based  upon  the  uncertain 
and  varying  bases  of  valuation,  would  be  accom- 
panied by  another  flood  of  certificates  of  deposit. 
The  Government  would  turn  out  these  notes  and 
certificates,  and  their  receivers  would  at  once  put 
them  in  circulation.  Their  value  would  depend 
entirely  upon  the  popular  estimate  which  should 
be  made  of  their  purchasing  power.  The  fact 
that  the  notes  had  been  declared  a  legal  tender 
would  not  add  a  particle  to  their  value.  The  peo- 
ple wovild  make  their  own  estimate  of  the  prospect 
for  the  fulfilment  of  the  promise  upon  which  they 
were  based,  and  that  estimate  would  fix  their  value. 


THE  SUBTREASURY  CHEAP-MONEY  PLAN    G5 

What  would  be  the  prospect  for  this  promise  to 
be  fully  kept  ?  If  prices  went  down  after  the  de- 
posit, the  produce  would  be  left  there  till  the  very 
end  of  the  year  and  sold  for  what  it  would  bring. 
The  effect  of  throwing  a  great  mass  of  produce 
upon  the  market  at  one  time  would  be  to  lower 
still  further  the  price,  and  the  result  would  be  a 
great  loss  to  the  Government,  which  must  be  made 
good  by  taxation.  As  the  farmers  of  the  country 
pay  about  half  of  the  taxes,  they  would  thus  have 
to  pay  half  of  the  cost  of  then*  own  folly.  From 
the  nature  of  the  case  a  falling  off  in  value  would 
be  almost  inevitable,  for  speculators  and  pur- 
chasers would  be  interested  in  waiting  for  a  forced 
sale,  being  thus  certain  of  buying  at  a  lower  price. 
In  case  there  shoidd  be  a  general  rise  after  de- 
posit, the  chances  would  be  that  the  farmers  most 
in  need  of  profiting  by  it  would  not  be  in  a  po- 
sition to  do  so,  for  the  poorer  ones  would  have 
parted  with  their  notes  as  soon  as  received,  in 
payment  of  their  debts,  and  would  have  also  sold 
their  deposit  certificates  at  the  first  opportunity. 
Whatever  rise  there  might  be,  therefore,  would  go 
to  the  advantage  of  the  speculators  in  certificates. 

As  for  the  depreciated  value  of  the  notes  issued 
in  such  volume,  there  can  be  no  doubt  upon  that 
point.  It  Avould  be  fiat  money  of  a  more  worthless 
kind  than  any  which  has  hitherto  been  issued.  It 
would  be  more  worthless  than  the  Land  Bank 
money  of  Rhode  Island,  because  that  was  based 
upon  the  land  of  the  State.     It  would  be  more 


6G  CHEAP-MONEY  EXPEEIMENTS 

worthless  than  that  of  John  Law's  bank  in  France, 
for  that  was  based  upon  all  the  property  of  France, 
It  would  be  more  worthless  than  that  of  the  Ar- 
gentine Republic,  for  that  was  based  upon  all  the 
landed  property  of  the  nation.  In  all  these  in- 
stances the  fiat  money  was  declared  to  be  a  legal 
tender  and  to  be  payable  for  public  and  private 
debts.  In  all  of  them  it  was  issued  for  a  term  of 
years.  But  this  warehouse-deposit  money  is  based 
upon  nothing  except  the  arbitrary  judgments  of 
an  irresponsible  body  of  political  appointees  as  to 
the  value  of  products  a  year  hence,  and  is  to  be 
destroyed  at  the  end  of  a  year.  Nobody  would 
ever  consent  to  take  it  at  its  face-value  in  payment 
of  a  debt,  or  in  payment  for  goods,  and  it  would 
be  confined,  as  the  Rhode  Island  paper  money  was, 
almost  entirely  to  transactions  among  its  original 
holders.  It  would  enormously  inflate  prices  in  the 
communities  in  which  it  circulated,  and  thus  make 
dearer  everything  that  the  farmer  had  to  buy. 
But  it  would  never  be  received  elsewhere  except 
at  a  discount,  and  consequently  would  have  no 
effect  in  raising  the  price  of  the  products  of  the 
farmer,  which  have  to  be  sold  in  the  markets  of 
the  world.  Then,  too,  each  period  of  enormous 
inflation  would  be  followed  by  a  period  of  sudden 
and  almost  paralyzing  contraction,  for  at  the  end 
of  each  year  all  the  notes  and  certificates  must  be 
destroyed. 

We  have  said  nothing  about  the  unconstitu- 
tional aspect  of  the  proposition  for  the  Govern- 


THE  SUBTREASURY  CHEAP-MONEY  PLAN     G7 

ment  to  go  into  the  business  of  loaning  money  and 
speculating  in  crops  —  a  form  of  paternalism  the 
most  extreme  ever  proposed  in  this  country.  One 
of  the  advocates  of  the  measure,  when  asked  at  a 
hearing  before  a  Congressional  committee  why  its 
authors  had  not  included  wool,  hops,  rice,  and 
cheese  Avith  the  other  produce  specified  for  deposit, 
made  answer  that  those  staples  were  protected  by 
a  high  tariff,  75  per  cent,  on  wool  alone,  and  were 
not  entitled  to  further  aid  from  the  Government. 
Whatever  virtues  may  reside  in  the  protective  sys- 
tem, it  is  unfortunately  true  that  to  the  arguments 
advanced  in  defense  of  a  high  tariff  we  owe  the 
impression,  so  strong  among  many  portions  of  the 
population,  that  it  is  the  duty  of  the  Government 
to  render  assistance  to  all  industries  and  occupa- 
tions whose  members  are  in  distress. 


CHAPTER  VIII 
THE   "PER  CAPITA"  DELUSION 

THE  per  capita  argument  has  always  been  a 
favorite  method  for  sustaining  a  demand  for 
cheap  money.  Such  demands  invariably  arise 
when  times  are  hard;  that  is,  when  money  is 
scarce.  The  cheap-money  advocates,  acting  on  the 
knowledge  that  a  great  many  people  are  wishing 
that  they  had  more  money  in  their  pockets,  come 
forward  with  the  explanation  that  the  real  cause 
of  the  trouble  is  the  smallness  of  the  monetary 
circulation,  the  volume  of  currency  not  being  ade- 
quate for  the  demands  of  the  business  of  the  coun- 
try. They  point  to  other  countries,  like  England, 
Germany,  and  France,  saying  that  they  have  a 
much  larger  per  capita  circulation  than  the  United 
States,  and  claim  that  everybody  in  this  country 
would  have  more  money  in  his  pocket  if  a  great 
addition  of  some  form  of  cheap  money — either  ir- 
redeemable paper,  or  depreciated  silver,  or  sub- 
treasury  notes — were  made  to  the  currency. 

The  fundamental  defect  in  the  argument  is  that 
it  confounds  small  circulation  with  small  distri- 


THE   "PEE  CAPITA"  DELUSION  69 

biition.  The  trouble  is  not  that  the  circulation  is 
small,  but  that  so  many  people  fail  to  get  much 
of  it.  If  the  circulation  were  to  be  doubled,  or 
trebled,  or  quadrupled,  what  reason  is  there  for 
believing  that  the  people  who  have  least  at  pres- 
ent would  have  any  more  ?  How  ivoidd  they  go  to 
tvorJc  to  get  some  of  the  increase  into  their  iwckets? 
This,  as  we  said  in  one  of  the  earlier  chapters,  is 
the  crucial  question  in  all  schemes  for  making 
money  cheap  and  plentiful.  How  can  a  man  who 
wants  some  of  it  obtain  it  except  he  give  labor  or 
goods  in  return  for  it  °?  If  he  have  labor  or  goods 
to  sell,  does  it  make  any  difference  to  him  whether 
the  volume  of  currency  be  large  or  small  f  Is  it 
not  always  large  enough  to  furnish  payment  for 
what  he  has  to  sell*?  And  if  he  has  anything  to 
sell,  would  not  he  rather  receive  his  payment  in 
dear  money  than  in  cheap  money?  Was  there 
ever  a  man  yet  who  did  not  desire  to  be  paid  for 
his  wares  in  the  soundest  and  best  money  obtain- 
able ?  "Who  are  the  men  who  hope,  in  some  mys- 
terious manner,  to  get  money  into  their  pockets 
through  a  great  issue  of  cheap  money  by  the  Gov- 
ernment? Are  they  not,  almost  invariably,  men 
who  have  nothing  to  sell  in  exchange  for  it  ? 

It  is  difficult  to  see  why  the  per  capita  argument 
should  influence  any  one  who  thinks  about  it  care- 
fully. When  we  say  that  the  wealth  of  the  coun- 
try if  divided  equally  among  all  its  inhabitants 
would  be  so  many  dollars  per  capita,  nobody  is 
seriously   disturbed   by  the  fact.     Nobody   says 


70  CHEAP-MONEY  EXPERIMENTS 

that  there  is  not  wealth  enough  in  the  country. 
The  most  usual  observation  is  that  it  is  a  pity  it 
cannot  be  more  evenly  distributed.  But  when  the 
statement  is  made  that  the  circulation  is  only  $23 
per  ccqnta,  many  people  are  inclined  to  think  that 
this  is  not  enough,  and  that  if  we  had  more  every- 
body would  be  in  more  comfortable  circumstances. 
But  would  everybody  get  some  of  the  increase 
into  his  pocket"?  If  not,  what  would  be  the  ad- 
vantage? If  the  wealth  of  the  country  were  to 
be  doubled,  where  would  the  increase  go?  The 
greater  part  of  it  would  go  to  the  millionaires  and 
other  rich  people  who  have  most  at  present,  while 
the  people  who  have  least  would  get  little  or  none 
of  it.  So  it  would  be  with  an  increase  of  circulat- 
ing medium.  If  the  j^f'r  capita  were  to  be  doubled, 
the  ratio  of  the  present  division  would  be  main- 
tained. The  people  who  had  the  most  before 
would  get  the  most  of  the  increase,  while  those 
who  had  none  before  would  get  none  now.  The 
great  want  of  the  people  who  have  none  is  not  an 
increase  in  the  volume  of  currency,  but  the  dis- 
covery of  a  new  method  by  which  they  can  get 
some  of  the  currency  already  in  circulation  into 
their  pockets. 

Statistics  published  lately  by  the  Treasury  De- 
partment demonstrate  conclusively  the  fallacy  of 
the  per  capita  argument.  These  give  the  per 
capita  circulation  for  each  year  from  1860  down 
to  the  present  time,  and  show  that  there  has  been 
a  steady  rise  from  $17.50  in  1870  to  $23.45  in  1891. 


THE   "PER  CAPITA"  DELUSION  71 

If  prosperity  is  determined  by  per  capita,  this 
country  ought  to  be  vastly  better  off  in  1890-1891 
than  it  was  in  1870,  but,  as  a  matter  of  fact,  1870 
was  one  of  the  most  prosperous  years  the  coun- 
try has  ever  known,  while  1890  and  1891  will  be 
known  in  history  as  years  of  almost  unequaled 
financial  and  industrial  depression.  All  through 
the  years  since  1878  we  have  been  swelling  the 
volume  of  currency  by  coining  silver  and  gold  to 
the  amount  of  $945,000,000,  and  have  been  issu- 
ing many  millions  more  of  silver  notes  and  gold 
notes,  till  we  have  now  a  circulation  of  over 
$1,500,000,000  against  only  a  little  more  than 
$055,000,000  in  1870. 

Those  persons  who  were  complaining  a  few 
months  ago,  when  money  was  scarce,  that  even 
this  immense  volume  of  currency  was  insufficient 
for  the  business  iieeds  of  the  country,  and  that  if 
we  had  a  larger  circulation  j9Pr  capita  there  would 
be  no  such  scarcity,  were  laboring  under  a  misap- 
prehension. They  were  confounding  contraction 
of  the  currency  with  contraction  of  credit.  Ninety- 
two  per  cent,  of  all  the  business  of  the  country  is 
done  on  credit,  and  only  eight  per  cent,  with  ac- 
tual currency.  When,  therefore,  credit  is  unsettled 
as  it  was  by  the  impending  peril  of  free-silver 
coinage,  which  would  have  lowered  the  standard  of 
value  as  well  as  destroyed  its  stability,  instantly  a 
serious  monetary  contraction  was  felt  throughout 
all  the  avenues  of  trade.  Instead  of  the  trouble 
being  one  which  an  issue  of  cheap  money  would 


72       CHEAP-MONEY  EXPERIMENTS 

have  remedied,  it  was  one  which  owed  its  existence 
entirely  to  the  mere  threat  of  such  issue.  As  soon 
as  the  threatened  danger  was  averted,  the  strin- 
gency disappeared,  and  there  has  been  no  com- 
plaint heard  since  about  a  scarcity  of  money, 
either  for  "moving  the  crops"  or  for  anything 
else. 

Suppose  now  that  free  coinage  of  silver  were 
to  be  authorized,  what  would  be  the  effect  upon 
the  circulation  ?  It  is  estimated  that  $12,000,000 
would  be  the  extreme  amount  that  it  could  add  to 
the  circulation.  If  the  increase  of  nearly  a  billion 
since  1870  has  not  helped  us,  would  twelve  millions 
do  it  ?  And  if  we  were  to  have  free  coinage,  into 
whose  pockets  would  the  increase  go  ?  Not  into 
those  of  the  peoj^le,  but  into  those  of  the  men 
who  sold  the  silver  to  the  Government  at  a  price 
greater  than  it  would  be  worth  as  money  after 
being  coined.  Those  men  would  not  put  it  into 
the  pockets  of  the  people,  but  would  add  it  to 
their  own  wealth,  and  the  only  benefit  the  people 
would  derive  would  be  the  opportunity  to  pay  off 
their  debts  in  a  cheaper  money  than  that  in  which 
they  were  incurred,  provided  they  were  able  to 
get  some  of  it  in  return  for  labor  or  goods. 

Per  capita  arguments  from  foreign  countries 
are  all  misleading.  Nobody  can  tell  what  the  per 
capita  circulation  of  Germany,  France,  and  Eng- 
land is,  because  those  countries  have  a  metallic 
circulation  of  large  and  unknown  volume,  with 
no  small  bank-notes  like  ours.     The  systems  in 


THE    "PER   CAPITA"   DELUSION  73 

all  these  countries  are  so  different  from  ours  that 
intelligible  comparison  is  out  of  the  question. 

If  size  of  per  capita  circulation  determines  pros- 
perity, how  does  it  happen  that  the  Argentine 
Republic,  with  a  per  capita  of  over  one  hundred 
dollars,  is  in  such  financial,  commercial,  and  in- 
dustrial collapse?  How  did  it  happen  that  re- 
peated additions  to  its  volume  of  currency  did 
not  check  its  downward  march  to  ruin  ? 

The  delusion  behind  the  per  capita  argument  is 
the  same  one  that  is  behind  all  cheap-money  pan- 
aceas. It  is  a  belief,  not  always  clearly  defined, 
that  a  large  issue  of  money  by  the  Government 
will  carry  with  it  in  some  mysterious  way  an  instru- 
mentality for  getting  some  of  that  money  into  the 
pockets  of  the  people  without  the  people  giving 
anything  in  return  for  it.  It  is  based  on  the  idea 
that  the  Government  can  create  money,  and  is  a  per- 
fectly logical  deduction  from  that  idea,  for  if  the 
Government  can  create  money,  there  is  no  reason 
why  it  should  not  distribute  it  freely  among  the  peo- 
ple. In  fact,  if  the  Government  can  create  money, 
and  by  its  own  edict  maintain  it  in  circulation  as 
good  as  any  other  money,  ivliy  should  the  Government 
levy  taxes  f  This  question  has  been  asked  before, 
but  we  have  never  seen  or  heard  an  answer  to  it. 
If  the  Government  can  take  75  cents'  worth  of 
silver,  and  by  declaring  it  to  be  a  dollar  make  it 
worth  100  cents,  why  should  it  not  do  the  same 
with  50  cents'  worth,  or  10  cents'  worth,  or  with  a 
piece  of  paper?  And  having  done  this,  having 
7 


74       CHEAP-MONEY  EXPERIMENTS 

by  its  fiat  made  a  piece  of  paper  worth  a  dollar, 
why,  we  ask  again,  should  it  not  abolish  taxation 
and  support  itself  with  the  money  of  its  own  crea- 
tion ?  If  it  were  to  do  that  it  would  give  us  a  j)er 
capita  circulation  greater  than  any  the  world  has 
yet  seen. 


CHAPTER  IX 
MICHIGAN'S  "WILD -CAT"  BANKS 

THE  history  of  Michigan's  "  wild-cat "  banking 
experience,  while  not  so  applicable  to  pres- 
ent financial  discussion  as  other  cheap-money  ex- 
periments which  we  have  cited  in  previous  chap- 
ters, is  nevertheless  instructive  for  two  reasons : 
first,  because  it  was  an  attempt  to  make  "  hard 
times  "  easier  by  unlimited  issues  of  irredeemable 
paper  money,  and  second,  because  the  money  so 
issued  was  based  largely  on  land  as  security.  For 
these  reasons  it  has  seemed  to  us  worth  while  to 
recall  it  at  the  present  time. 

Michigan  became  a  State  in  January,  1837.  Al- 
most the  first  act  of  her  State  legislature  was  the 
passage  of  a  general  banking  law  under  which  any 
ten  or  more  freeholders  of  any  county  might  organ- 
ize themselves  into  a  corporation  for  the  transac- 
tion of  banking  business.  Of  the  nominal  capital 
of  a  bank  only  ten  per  cent,  in  specie  was  required 
to  be  paid  when  subscriptions  to  the  stock  were 
made,  and  twenty  per  cent,  additional  in  specie 
when  the  bank  began  business.     For  the  further 

75 


76       CHEAP-MONEY  EXPERIMENTS 

security  of  the  notes  which  were  to  be  issued  as 
currency,  the  stockholders  were  to  give  first  mort- 
gages upon  real  estate,  to  be  estimated  at  its  cash 
value  by  at  least  three  county  officers,  the  mort- 
gages to  be  filed  with  the  auditor-general  of  the 
State.  A  bank  commissioner  was  appointed  to 
superintend  the  organization  of  the  banks,  and 
to  attest  the  legality  of  their  proceedings  to  the 
auditor-general,  who,  upon  receiving  such  attesta- 
tion, was  to  deliver  to  the  banks  circulating  notes 
amounting  to  two  and  a  half  times  the  capital  cer- 
tified to  as  having  been  paid  in. 

This  law  was  passed  in  obedience  to  a  popular 
cry  that  the  banking  business  had  become  an 
"  odious  monopoly  "  that  ought  to  be  broken  up. 
Its  design  was  to  '^  introduce  free  competition  into 
what  was  considered  a  profitable  branch  of  busi- 
ness heretofore  monopolized  by  a  few  favored  cor- 
porations." Anybody  was  to  be  given  fair  oppor- 
tunities for  entering  the  business  on  equal  terms 
with  everybody  else.  The  act  was  passed  in  March, 
1837,  and  the  legislature  adjourned  till  November 
9  following.  Before  the  latter  date  arrived,  in  fact 
before  any  banks  had  been  organized  under  the 
law,  a  financial  panic  seized  the  whole  country. 
An  era  of  wild  speculation  reached  a  climax,  the 
banks  in  all  the  principal  cities  of  the  country  sus- 
pended specie  payments,  and  State  legislatures 
were  called  together  to  devise  remedies  to  meet 
the  situation.  That  of  Michigan  was  convened 
in  special  session  in  June,  and  its  remedy  for  the 


MICHIGAN'S    "WILD-CAT"  BANKS  77 

case  of  Michigan  was  to  leave  the  general  banking 
law  in  force,  and  to  add  to  it  full  authority  for 
banks  organized  under  it  to  begin  the  business  of 
issuing  bills  in  a  state  of  suspension — that  is,  to 
flood  the  State  with  an  irredeemable  currency, 
based  upon  thirty  per  cent,  of  specie  and  seventy 
pejucent.  of  land  mortgage  bonds.  The  law  was 
so  modified  that  any  number  of  persons,  upon  sign- 
ing an  agreement  to  that  effect,  might  become  a 
banking  corporation,  and  almost  any  one  might 
become  a  director. 

Everybody  in  the  State  who  was  in  debt,  and 
everybody  who  saw  in  the  law  an  opportunity  for 

^rascality,  went  into  the  banking  business.  Within 
a  few  months  wherever  two  roads  crossed  a  bank 
was  established.  One  was  found  in  a  sawmill, 
and  one  of  the  official  records  of  the  period  says : 
"  Every  village  plot  with  a  house,  or  even  without 
a  house,  if  it  had  a  hollow  stump  to  serve  as  a 
vault,  was  the  site  of  a  bank."  Many  of  them  had 
no  offices,  no  books,  and  no  capital.    Judge  T.  M. 

_Cooley,  in  an  interesting  account  of  the  experience 
in  his  history  of  Michigan,  published  in  the  "Amer- 
ican Commonwealths"  series,  says  (p.  267) :  "Wild 
lands  that  had  been  recently  bought  of  the  gov- 
ernment at  one  dollar  and  twenty-five  cents  an 
acre  were  now  valued  at  ten  or  twenty  times  that 
amount,  and  lots  in  villages  that  still  existed  only 
on  paper  had  a  worth  for  banking  purposes  only 
limited  by  the  conscience  of  the  officer  who  was  to 
take  the  securities." 


78  CHEAP-MONEY   EXPERIMENTS 

As  for  the  requirements  for  ten  per  cent,  pay- 
ment in  specie  at  the  time  of  subscription,  and 
twenty  per  cent,  before  beginning  banking  busi- 
ness, these  were  soon  got  around  in  ways  more 
unscrupulous  than  ingenious.  As  the  payments 
were  to  be  made  to  the  banks  themselves,  the 
same  specie  could  be  used  many  times  over.  Some- 
times a  small  sum  in  specie  was  paid  in  and  taken 
out,  and  the  process  repeated  over  and  over,  till 
the  amount  required  was  made  to  appear  as  hav- 
ing been  received.  Sometimes  specie  certificates, 
stating  that  the  maker  held  a  sum  of  specie  for 
the  bank,  were  counted  as  specie.  These  were 
almost  invariably  false,  and  they  were  made  to  do 
service  for  many  banks  in  succession.  If  specie 
was  actually  used,  as  soon  as  the  bank  examiner 
had  seen  it  it  was  hurried  into  a  wagon  and  taken 
with  fleet  horses  to  another  bank,  where  it  again 
did  duty  as  capital.  ''  Gold  and  silver,"  say  the 
official  chroniclers,  "  flew  about  the  country  like 
magic ;  its  sound  was  heard  in  the  depths  of  the 
forest,  yet,  like  the  wind,  one  knew  not  whence  it 
came  or  whither  it  was  going."  Sometimes  what 
seemed  to  the  eye  of  the  examiner  to  be  kegs  of 
specie  were  really  kegs  of  nails  or  window-glass 
with  a  thin  layer  of  coin  on  top.  The  loan  of 
specie  to  be  used  in  the  establishing  of  banks  be- 
came a  regular  and  lucrative  branch  of  banking 
business. 

Within  one  year  forty-nine  banks  were  organ- 
ized, and  forty  went  into  operation  with  a  professed 


MICHIGAN'S   "WILD-CAT"  BANKS  79 

capital  of  $1,745,000,  of  which  thirty  per  cent,  was 
chiimeVl  to  have  been  paid  in  in  specie.  Over 
$2,000,000  of  irredeemable  paper  was  distributed 
throughout  the  State,  of  which  probably  not  a 
dollar  was  based  on  bona  fide  capital  paid  in  for 
legitimate  banking  purposes.  As  was  inevitable, 
there  was  no  public  confidence  in  money  of  this 
character.  Whoever  received  it  got  rid  of  it  as 
soon  as  possible.  It  was  always  at  a  great  dis- 
count with  the  money  of  Eastern  banks,  and 
some  of  it  was  rated  much  higher  than  the 
rest.  Much  of  it  was  never  circulated  near  the 
places  of  issue,  which  were  selected  often  in 
spots  as  inaccessible  as  possible,  in  order  that 
the  bills  might  not  soon  return  to  plague  their 
sponsors.  Adventurers  from  New  York  and 
other  distant  places  went  into  the  wilds  of  the 
State,  located  banks,  took  the  entire  issue  of 
money,  and  put  it  in  circulation  anywhere  but 
near  the  place  of  issue. 

The  commissioners  used  all  possible  vigilance  to 
close  up  bogus  banks,  but  as  fast  as  they  closed 
them  others  were  started.  When  a  "  wild-cat " 
bank  either  failed  or  was  put  in  the  hands  of  a 
receiver  the  farmers  and  laboring  people  suffered 
the  most  severely,  as  is  always  the  case  in  such 
disasters.  The  plague  ran  its  course  in  about  a 
year  and  a  half.  At  the  end  of  1839  there  were 
no  fewer  than  forty-two  ''wild-cat"  banks  in  the 
hands  of  receivers,  and  only  four  still  doing  busi- 
ness.   Nearly  all  the  currency  of  the  State  was 


80       CHEAP-MONEY  EXPERIMENTS 

worthless,  business  was  prostrate,  values  of  all 
kinds  had  been  nearly  or  quite  destroyed.  There 
was  no  buying  or  selling  of  land,  and  only  the  bare 
necessities  of  life  were  able  to  command  a  market. 

The  banking  law  was  taken  before  the  courts 
and  declared  unconstitutional,  and  the  system  was 
abolished,  leaving  behind  it  no  assets,  but  bound- 
less ruin. 

In  summing  up  the  results,  Judge  Cooley,  in 
language  which  many  modern  advocates  of  cheap 
money  may  peruse  with  profit,  says :  ''  Such  were 
the  fruits  of  the  experiment  of  giving  equal  and 
practically  unlimited  rights  in  banking  to  every- 
body who  wanted  a  shorter  road  to  wealth  than 
that  trodden  by  labor  and  honest  industry.  The 
new  State,  under  the  bold  but  inexperienced  guid- 
ance of  its  youthful  governor,  disdaining  the  les- 
sons of  history,  had  determined  to  try  for  itself 
the  experiment  of  manufacturing  money  by  the 
printing-press.  The  condition  after  the  experi- 
ment might  be  compared  to  a  forest  after  a  cy- 
clone; everything  was  prostrate,  and  everything 
was  in  confusion !  .  .  .  Thereafter  wild-cat 
banking  was  a  byword  in  the  State ;  but  the  les- 
sons it  taught  needed  to  be  learned  at  some  time, 
and  were  not  likely  to  be  learned  except  with  ex- 
perience as  a  teacher.  One  of  its  lessons  was  that 
neither  real  estate  nor  anything  else  not  imme- 
diately convertible  into  money  can  support  the 
credit  of  bank  currency."  This  lesson  is  as  appli- 
cable to  the  whole  country  as  it  was  to  Michigan, 


MICHIGAN'S    "WILD-CAT"   BANKS  81 

for  even  the  United  States  Government  is  not 
powerful  enough  to  support  the  credit  of  bank 
currency  in  real  estate  or  anything  else  not  im- 
mediately convertible  into  money.  This  is,  more- 
over, the  lesson  of  all  human  experience. 


CHAPTER  X 

ALABAMA'S  THOUSAND-DOLLAR-A-DAY 
BLUNDER 

ALABAMA'S  experience  with  banking  '4n  tlie 
JTA,  interests  of  the  people  "  was  in  some  respects 
similar  to  that  of  Michigan  with  *'  wild-cat "  banks. 
Like  that  of  many  other  States  at  about  the  same 
period,  it  resulted  in  complete  collapse,  with  great 
financial  loss  to  the  people  whom  it  was  designed 
to  benefit,  a  serious  impairment  of  the  State's 
credit,  a  flood  of  public  scandal,  and  a  heavy  bur- 
den of  debt.  The  history  of  Alabama's  blunder  is 
so  full  of  instruction  for  those  who  believe  in 
State  or  national  agency  for  making  everybody 
prosperous  by  means  of  liberal  banking  and  cheap 
money,  that  we  shall  set  it  forth  in  some  detail. 

Alabama  went  into  the  banking  business  as  a 
State  in  1823,  when  its  legislature  passed  an  act 
for  the  establishment  of  the  Bank  of  the  State  of 
Alabama,  the  capital,  which  was  not  limited  to 
any  amount,  to  be  furnished  entirely  by  the  State. 
The  management  of  the  bank  was  intrusted  to 
a  president  and  twelve  directors,  who  were  to  be 

82 


ALABAMA'S  BLUNDER  83 

chosen  annually  by  joint  vote  of  the  legislature. 
The  only  limit  put  to  the  volume  of  notes  which 
the  bank  should  issue  was  that  they  should  be  in 
such  sums  as  the  president  and  dkectors  might 
deem  "  most  expedient  and  safe."  Certain  public 
funds  were  set  aside  to  constitute  part  of  the  capi- 
tal of  the  bank,  and  in  addition  the  State  was 
authorized  to  issue  State  stock  to  the  amount  of 
$100,000,  redeemable  within  ten  years,  and  bearing 
interest  not  exceeding  6  per  cent.  The  bank  began 
business  in  1825.  Three  years  later  it  was  author- 
ized to  issue  $100,000  more  of  State  stock,  redeem- 
able in  twenty  years,  at  a  rate  of  interest  not  ex- 
ceeding 6  per  cent.  In  the  same  year  other  public 
funds,  aggregating  $1,300,000,  were  added  to  the 
capital.  Five  years  later  about  $500,000  of  State 
University  funds  were  transferred  to  the  bank  as 
capital.  Between  1832  and  1835  four  branches  of 
the  State  Bank  were  established  in  as  many  cities, 
and  State  bonds  to  the  amount  of  $6,300,000  were 
issued  to  supply  them  with  capital. 

The  design  of  the  founders  of  the  system  was  to 
distribute  the  bank  money  as  evenly  as  possible 
among  the  people  of  the  State,  and  with  this  end 
in  view  the  original  act  stipulated  that  the  money 
loaned  by  the  bank  should  be  apportioned  among 
the  several  counties  of  the  State  according  to  their 
representation  in  the  legislature.  At  first  no  limit 
appears  to  have  been  placed  to  the  amounts  of  a 
bank's  money  which  its  president  and  directors 
could  themselves  borrow.     The  result  was  that 


84  CHEAP-MONEY   EXPERIMENTS 

they  borrowed  as  much  as  they  wished,  and  loaned 
it  to  their  friends  on  such  security  as  seemed  satis- 
factory to  themselves. 

The  choice  of  president  and  directors  by  the 
legislature,  designed  to  give  the  people  control  of 
the  bank's  management,  led  to  gross  corruption 
and  abuse,  being  aided  greatly  in  these  directions 
by  the  requirement  for  equal  distribution  of  loans 
throughout  the  State  and  by  the  lack  of  any  limit 
upon  the  sums  which  the  president  and  direc- 
tors could  borrow.  When  the  several  branches 
had  been  established,  each  with  its  president  and 
directors,  there  were  annually  to  be  chosen  by  the 
legislature  between  sixty  and  seventy  directors. 
In  their  campaigns  for  election  to  the  legislature, 
candidates  would  point  to  the  requirement  for  the 
equal  distribution  of  loans  among  the  people,  and 
promise  each  one  of  their  supporters  a  loan  in  case 
of  election.  Before  members  who  had  been  elected 
after  such  pledges,  the  candidates  for  bank  direc- 
tors had  to  go  for  election.  Mr.  J.  H.  Fitts,  of  Tus- 
caloosa,— to  whose  valuable  paper  upon  the  history 
of  the  State  Bank  and  its  branches,  read  by  him 
before  the  Alabama  Bankers'  Association  in  June, 
1891,  we  are  indebted  for  most  of  the  information 
in  this  article, — says  the  number  of  candidates  for 
directors  was  usually  two  or  three  times  as  great 
as  the  number  of  places  to  be  filled,  adding :  ''For, 
it  must  be  remembered,  the  office  of  bank  director, 
without  salary  or  any  emolument  whatever,  was 
regarded  by  many  as  the  most  lucrative  office  in 


ALABAMA'S    BLUNDER  85 

the  State.  The  legislature  was  annually  beset  by  a 
horde  of  greedy  adventurers,  who  were  candidates 
for  bank  directors,  and  who  resorted  to  all  kinds 
of  electioneering  tricks  and  promises  to  secure 
their  election.  Unfortunately  for  the  banks,  the 
votes  of  too  many  members  of  the  legislature  were 
controlled  by  the  liberality  of  candidates  in  prom- 
ising bank  discounts  to  them  and  their  friends." 
Mr.  J.  "W.  Garrett,  in  his  "  Reminiscences  of  Pub- 
lic Men  in  Alabama,"  gives  an  aniusing  incident 
illustrating  this  abuse.  A  member  of  one  branch 
of  the  legislature  died  while  a  campaign  for  the 
election  of  bank  directors  was  in  progress,  and 
all  his  fellow-members  wore  the  usual  badge  of 
crape  on  the  arm  for  thirty  days.  A  shrewd 
countryman  from  a  remote  county,  who  happened 
to  be  visiting  the  capital,  noticing  that  all  the  men 
with  crape  were  the  recipients  of  "treats"  of  all 
kinds,  including  cigars  and  suppers  galore,  put  a 
similar  badge  upon  his  own  arm  and  had  a  royal 
good  time  for  several  days  before  the  imposture 
was  discovered. 

Mr.  Fitts  relates  that  one  of  the  hotel-keepers  of 
Tuscaloosa  succeeded  in  getting  himself  elected  a 
bank  director  in  1832.  "  The  increased  patron- 
age of  his  hotel  was  wonderful;  many  members 
of  the  legislature,  and  a  great  majority  of  the 
persons  who  visited  Tuscaloosa  to  borrow  money, 
stopped  at  his  hotel  with  the  view  of  securing  the 
influence  of  the  proprietor  with  the  Board  of 
Directors,  which  passed  upon  all  applications  for 


86       CHEAP-MONEY  EXPEEIMENTS 

money."  Four  other  hotel-keepers  in  the  same 
city,  realizing  that  there  was  no  other  way  in 
which  to  compete  with  such  attractions,  became 
candidates,  and  in  1834  they  were  all  elected.  On 
one  occasion  when  the  five  hotel-keepers  consti- 
tuted a  majority  of  the  Board  of  Directors,  and 
had  discounted  a  great  many  notes  and  bills,  each 
note  or  bill  receiving  the  ardent  advocacy  of  one 
of  the  hotel-keepers  and  the  votes  of  all  five,  a 
note  was  passed  around  which  received  nobody's 
support,  and  was  about  to  be  rejected,  when  the 
president,  who  was  not  in  sympathy  with  the  ma- 
jority, remarked  quietly  of  the  signer  of  the  note: 
"  This  man  must  have  camped  out  last  night." 

Of  course,  members  of  the  legislature  had  great 
influence  on  the  directors.  "No  director,"  says 
Mr.  Fitts,  "could  expect  the  vote  of  a  member 
whose  bill  he  refused  to  discount.  This  made  it 
an  easy  matter  for  members  of  the  legislature  to 
borrow  money  for  themselves  and  their  friends. 
The  directors  were  even  afraid  to  refuse  to  dis- 
count paper  which  was  recommended  by  a  mem- 
ber of  the  legislature." 

There  could  be  only  one  outcome  of  such  a 
state  of  affairs.  The  State  Bank  had,  in  1826,  a 
capital  of  $253,646  and  a  circulation  of  $273,507. 
In  1837  the  capital  of  the  State  Bank  and  its 
branches  had  reached  $7,889,886,  and  the  circula- 
tion $4,576,752.  The  notes  discounted  and  bills 
purchased  in  1826  amounted  to  $448,859;  in  1837 
they  amounted  to  $17,693,983.  A  commission 
which  had   been   appointed,  because  of   alleged 


ALABAMA'S  BLUNDER  87 

bank  frauds,  to  investigate  the  character  of  these 
notes  and  discounts  estimated  that  over  six  mil- 
lions of  the  $17,693,983  were  worthless.  This 
made  the  liabilities  of  the  banks  nearly  seven  mil- 
lions greater  than  their  assets,  and  made  it  plain 
that  something  heroic  must  be  done  to  prevent 
immediate  collapse.  Only  a  year  before,  the  peo- 
ple believed  themselves  to  be  enjoying  boundless 
prosperity.  They  had  such  faith  in  the  money 
of  their  banks  that  the  legislature,  on  Janu- 
ary 9,  1836,  passed  an  act  "abolishing  direct 
taxation  in  the  State,"  and  setting  aside  "$100,- 
000  of  the  bank  money  to  defray  the  expenses 
of  the  State  government.  That  was  a  practi- 
cal application  of  the  contention  that  if  a  State 
can  create  money  then  there  is  no  need  of  tax- 
ation. The  people  of  Alabama  in  this  respect 
carried  the  cheaj)-mouey  idea  to  its  logical  conclu- 
sion. They  made  the  test  when  they  were  in  the 
midst  of  what  are  known  as  the  "  flush  times  of 
Alabama."  Everybody  had  little  difficulty  in  get- 
ting some  money  into  his  pocket.  Yet  scarcely 
had  the  test  begun  when  a  panic  swept  over  the 
State,  and  it  was  discovered  suddenly  that  some- 
thing was  the  matter  with  the  financial  and  busi- 
ness situation.  The  legislature  was  summoned  in 
special  session  to  devise  means  of  relief.  The  de- 
mand from  all  quarters  was  for  more  money  for 
the  people,  and  it  was  decided  by  the  legislature 
to  heed  it,  by  authorizing  the  State  to  loan  the 
people  $5,000,000  more  through  the  banks.  This 
was  in  June.     In  December  following,  a  further 


88       CHEAP-MONEY  EXPERIMENTS 

loan  of  $2,500,000  was  made.  These  extreme 
measures  only  postponed  the  inevitable  collapse, 
while  adding  greatly  to  its  disastrous  conse- 
quences. In  1842  the  charters  of  the  branch 
banks  were  repealed,  and  in  1845  that  of  the  State 
Bank  expired  by  limitation. 

When  the  results  came  to  be  summed  up,  it  was 
discovered  that  the  University  and  other  funds, 
aggregating  several  millions  of  dollars,  had  been 
lost,  aud  that  the  State  had  sunk  with  them 
many  millions  more.  Mr.  Fitts  placed  the  total 
loss  to  the  State,  principal  and  interest,  up  to 
June,  1891,  at  over  $31,000,000,  and  estimated 
the  amount  of  interest  which  the  taxpayers  are 
called  upon  annually  to  pay  on  account  of  the 
lost  funds  and  outstanding  bonds  at  over  $271,- 
000  a  year.  In  a  recent  speech  which  Governor 
Jones,  of  Alabama,  made  in  Camden  County,  he 
placed  the  total  amount  of  taxation  for  these  ob- 
jects at  $362,000  a  year,  or  nearly  $1000  a  day. 
This  gives  us  a  concrete  example  of  the  cost  of 
cheap-money  experiments  which  is  of  great  value. 
Governor  Jones  used  it  very  forcibly  as  a  warn- 
ing to  his  people  against  the  insidious  teachings 
of  the  advocates  of  the  subtreasury  scheme,  for 
the  latter  plan  in  many  respects  resembles  the 
Alabama  plan.  As  Mr.  Fitts  well  says,  the  Ala- 
bama experience  "demonstrates  the  folly  of  a 
government  attempting  to  carry  on  a  banking 
business  with  public  funds  managed  or  controlled 
by  its  politicians." 


CHAPTER  XI 

MISSISSIPPI'S  CROP-MOVING  CURRENCY 

MISSISSIPPI'S  experience  with  cheap  money, 
during  the  period  of  inflation  and  specula- 
tion which  followed  the  removal  by  President 
Jackson  of  the  public  deposits  from  the  United 
States  Bank,  and  the  refusal  to  recharter  that 
bank,  was  more  reckless  than  that  of  Alabama, 
and  consequently  more  disastrous.  It  began  in 
1833  and  ended  in  1840.  For  five  or  six  years 
the  people  of  Mississippi  believed  themselves  to 
be  the  richest  and  most  prosperous  on  the  face 
of  the  globe.  Everybody  had  all  the  money  he 
wanted,  and  if  he  needed  more  the  banks  would 
pour  it  out  for  him.  Yet  when  the  end  came 
everybody  discovered  that  he  was  so  poor  that 
the  State  arose  as  one  man  and  repudiated  its 
most  solemn  obligations,  thus  adding  breach  of 
faith  to  its  other  follies.  In  this  respect  its  con- 
duct was  in  most  unfavorable  contrast  with  that 
of  Alabama,  though  the  disasters  both  suffered 
had  been  brought  on  by  similar  causes. 

"  Nowhere,"  says  Professor  William  G.  Sumner 


90       CHEAP-MONEY  EXPERIMENTS 

in  his  "  History  of  American  Currency,"  in  com- 
menting upon  the  developments  of  this  period, 
^'  had  the  paper-money  mania  raged  worse  than 
in  Mississippi,  where  the  banks  operated  as  cot- 
ton factors,  manufacturing  money  to  carry  cot- 
ton as  they  needed  it."  The  experiment  began 
in  1833  when  the  State  came  to  the  aid  of  the 
Planters'  Bank  of  Mississippi,  which  had  been 
chartered  three  years  before,  by  issuing  $2,000,- 
000  worth  of  bonds,  at  six  per  cent,  interest,  to  be 
used  as  the  bank's  capital.  The  avowed  object 
was  to  enable  the  bank  to  "  aid  in  developing  the 
resources  of  the  State."  The  bonds  sold  at  a  pre- 
mium, and  the  bank  had  a  remarkable  prosperity 
during  the  following  year.  This  was  so  encour- 
aging that  nine  new  banks  were  chartered  in 
1834,  and  many  others  in  following  years.  In 
1838  the  State,  desiring  to  get  a  larger  share  in 
the  general  prosperity  brought  on  by  such  liberal 
banking,  chartered  a  bank  of  its  own  called  the 
"  Union  Bank  of  Mississippi,"  and  issued  $5,000,- 
000  worth  of  bonds  at  five  per  cent.,  most  of 
which  were  sold  in  Holland  at  their  par  value, 
bringing  into  the  State  the  largest  sum  of  money 
its  people  had  ever  dreamed  of  possessing.  The 
whole  State  went  wild  with  a  fever  of  specula- 
tion. The  smaller  banks  did  their  best  to  rival 
the  Union  Bank,  and  all  vied  with  one  anpther 
in  pouring  out  currency,  making  loans  and  dis- 
counts, and  publishing  fabulous  accounts  of  their 
prosperity. 


MISSISSIPPI'S  CROP-MOVING  CURRENCY      91 

At  the  close  of  1839  the  twenty-six  banks  in  the 
State  professed  to  have  a  paid-up  capital  of  over 
$30,000,000,  loans  and  discounts  exceeding  $48,- 
000,000,  a  note  circulation  exceeding  $15,000,000, 
and  deposits  aggregating  nearly  $9,000,000.  As 
the  free  white  population  of  the  State  at  that  time 
was  only  170,000,  the  alleged  paid-up  capital  per 
head  equaled  $180,  loans  and  discounts  $285,  and 
the  circulation,  including  deposits,  $140.  Here, 
surely,  was  the  largest  per  capita  cii'culation  ever 
known,  larger  by  $40  than  what  our  wildest 
cheap-money  advocates  demand  now;  yet  what 
was  the  result  ?  At  the  moment  of  greatest  appa- 
rent prosperity,  when  everybody  believed  himself 
rich  and  hourly  growing  richer,  the  entire  system 
collapsed.  It  was  then  discovered  that  all  of  the 
boasted  $30,000,000  of  paid-up  capital,  with  the 
exception  of  the  money  that  had  been  borrowed 
on  the  bonds  of  the  State,  consisted  of  "stock 
notes"  which  had  been  paid  in  for  capital, 
the  banks  discounting  them  and  the  proceeds 
going  to  pay  for  stock  subscriptions.  This  was 
simply  an  exchange  of  one  form  of  credit  for 
another.  Absolutely  no  money  had  gone  into 
the  banks  except  that  obtained  by  the  sale  of 
State  bonds,  and  when  that  was  exhausted  no- 
thing remained  but  entries  upon  the  bank  records 
for  indebtedness  from  which  nothing  was  ever  to 
be  realized. 

In  summing  up  the  result,  Mr.  Henry  V. 
Poor,  from  whose  "  Money,  its  Laws   and  His- 


92       CHEAP-MONEY  EXPEEIMENTS 

tory  "  we  have  obtained  much  of  our  information, 

says: 

The  $48,000,000  of  loans  were  never  paid ;  the  $23,000,- 
000  of  notes  and  deposits  never  redeemed.  The  whole  sys- 
tem fell  a  huge  and  shapeless  wreck,  leaving  the  people  of 
the  State  very  much  as  they  came  into  the  world.  Their 
condition  at  the  time  beggars  description.  Society  was 
broken  np  from  its  very  foundations.  Everybody  was  in 
debt  without  any  possible  means  of  payment.  Lands  be- 
came worthless  for  the  reason  that  no  one  had  any  money  to 
pay  for  them.  The  only  personal  property  left  was  slaves, 
to  save  which  such  numbers  of  people  fled  with  them  from 
the  State  that  the  common  return  upon  legal  processes  was 
in  the  very  abbreviated  form  of  "G.  T.  T.,"  gone  to  Texas,  a 
State  which  in  this  way  received  a  mighty  accession  to  her 
population. 

The  State  paid  the  interest  on  the  bonds  issued 
for  the  banks  for  less  than  a  year,  when  the  gov- 
ernor informed  the  bondholders  that  the  State, 
"in  her  sovereign  capacity,  had  refused  payment 
of  her  bonds."  This  position  the  legislature  sus- 
tained in  1842  by  adopting  a  report  of  a  com- 
mittee declaring  payment  of  the  bonds  to  be 
"  incompatible  with  the  honor  and  dignity  of  the 
State."  The  State's  conduct  was  defended  on  the 
floor  of  Congress  by  Jacob  Thompson,  afterward 
President  Buchanan's  Secretary  of  the  Interior. 
The  bondholders  had  the  question  of  the  constitu- 
tionality of  the  bonds  brought  before  the  highest 
court  in  the  State,  and  obtained  a  decision  in 
their  favor,  the  court  affirming  their  constitution- 
ality and  declaring  them  to  be  binding  obligations 


MISSISSIPPI'S  CROP-MOVING  CURRENCY      03 

upon  the  State,  but  as  no  execution  could  issue 
against  the  State,  the  bondhoklers  could  obtain 
none  of  their  lost  money.  As  late  as  1853  some 
of  the  bondholders,  by  persistent  efforts,  obtained 
from  the  legislature  au  act  referring  the  ques- 
tion of  payment  to  the  people.  The  people  voted 
that  the  bonds  should  not  be  paid,  thus  adding 
the  final  and  overwhelming  touch  to  the  State's 
disgrace. 

Surely  there  could  not  be  found  in  the  long  and 
almost  inexhaustible  calendar  of  cheap-money  ex- 
periments a  more  striking  moral  lesson  than  this 
Mississippi  history  affords;  for  a  system  which 
destroys  not  only  the  material  prosperity'  of  a 
people,  but  its  moral  sense  as  well,  is  one  that 
should  be  shunned  like  a  pestilence. 


CHAPTER  XII 
A  CHEAP- MONEY  RETROSPECT 

THOSE  readers  who  have  followed  this  series 
of  articles  upon  cheap-money  experiments 
to  the  present  point  cannot  fail  to  have  observed 
that  we  have  arranged  the  order  of  the  series 
upon  a  cumulative  plan.  We  began  with  a  plain 
exposition  of  the  imperative  need  on  the  part  of 
the  people  of  this  country  of  a  clear  conviction 
that  no  money  except  the  best  was  worth  the 
having,  and  that  "cheap  money,"  in  any  and  all 
forms,  is  a  delusion  from  which  all  people  should 
pray  to  be  delivered.  From  this  we  passed  to  a 
historical  survey  of  the  more  notable  of  the  many 
experiments  which  have  been  made  in  various 
countries  and  times  to  improve  the  condition  of 
States  and  nations  by  making  mqney  cheap 
and  plentiful.  We  propose  now  to  recapitulate 
briefly  the  chief  points  in  this  survey  in  order 
that  the  full  moral  force  of  its  teaching  may  not 
be  missed. 

We  should  say,  perhaps,  at  the  outset  that  no 
formal  reply  has  been  made  to  numerous  letters 

94 


A  CHEAP-MONEY  RETEOSPECT      95 

that  have  come  to  us  questioning  in  one  way  or 
another  statements  which  had  been  advanced  in 
some  of  the  earlier  articles  of  the  series,  for  the 
reason  that  all  the  objections  raised  by  these  let- 
ters have  been  most  effectively  answered  by  sub- 
sequent articles.  For  example,  when  objection 
was  made  that  we  took  too  emphatic  ground  in 
favor  of  the  best  money  and  too  extreme  ground 
against  "cheap  money,"  it  seemed  to  us  better  to 
show  by  human  experience  that  our  position  was 
the  only  safe  or  tenable  one  than  to  argue  that  it 
must  be  so.  So  with  other  objections  that  the 
first  historical  cases  which  we  cited  covered  only 
a  part  of  the  problems  of  our  country  to-day. 
"We  preferred  to  answer  these  by  giving  further 
citations  which  did  cover  the  points  of  the  prob- 
lem not  reached  by  the  first. 

The  first  historical  experiment  recalled  by  us 
was  that  of  the  English  Laud  Bank  of  1696. 
This  was  the  most  formidable  project  ever 
broached  for  the  establishment  upon  private  capi- 
tal of  a  bank  which  should  lend  money  on  land  as 
security.  The  Government  granted  a  charter  on 
condition  of  the  requisite  amount  of  capital  being 
subscribed,  and  the  King  subscribed  £5000  as  an 
example  to  the  nation ;  but  beyond  that  the  Gov- 
ernment was  in  no  way  identified  with  the  bank. 
The  subscription  books  were  opened  with  entire 
confidence  that  the  necessary  £1,300,000  would  be 
obtained  within  a  few  days.  At  the  end  of  the 
period  allowed  for  raising  it  only  £2100  had  been 


96       CHEAP-MONEY  EXPERIMENTS 

subscribed  by  the  entire  nation.  It  was  tlius 
shown  that  private  capital  was  not  eager  to  enter 
into  the  business  of  lending  money  on  land.  The 
country  gentlemen,  who  had  been  eager  for  the 
establishment  of  the  bank,  were  not  in  position  to 
subscribe  to  its  capital,  since  their  sole  purpose 
in  wishing  for  it  was  to  be  able  to  borrow  money 
from  it  on  their  land,  and,  wishing  to  borrow, 
they  of  course  were  not  able  to  lend.  The  capi- 
talists would  not  put  their  money  into  it  because 
its  avowed  object  was  to  injure  them  by  lowering 
the  rate  of  interest  and  lessening  the  demand  for 
existing  money.  The  result  was  complete  failure 
to  establish  the  bank. 

Passing  from  this  failure  of  1G96,  we  took  up 
a  notable  attempt  which  was  made  in  Ehode 
Island  about  a  century  later  to  establish  a  Land 
Bank  as  a  State  institution,  which  should  lend 
money  on  land  as  security,  and  pledge  the  faith 
of  the  State  for  its  redemption.  We  showed  that 
from  the  outset  this  experiment  was  a  failure; 
that  the  money  which  the  State  declared  to  be  a 
legal  tender  for  public  and  private  debts  never  cir- 
culated at  par,  but  was  depreciated  from  its  first 
issue;  that  it  paralyzed  the  industries  and  com- 
merce of  the  State ;  that  the  whole  power  of  the 
State  government  was  not  sufficient  to  make  it 
circulate  at  par;  that  it  led  to  the  repudiation  of 
the  greater  part  of  the  State  debt,  giving  Rhode 
Island  the  name  of  *'  Rogues'  Island "  through- 
out the  land ;  that  it  dropped  steadily  during  the 


A  CHEAP-MONEY   RETROSPECT  97 

three  years  of  the  bank's  existence  till  one  dollar 
in  coin  was  worth  fifteen  of  the  Land  Bank  issue, 
and  that  the  end  was  a  collapse  of  credit  and 
business  so  complete  that  years  were  required  for 
the  State  to  recover  from  it. 

Criticism  was  made  upon  our  citation  of  the 
Rhode  Island  experiment  that  it  was  attempted 
in  a  small  and  struggling  State,  at  the  close  of 
the  exhausting  Revolutionary  War,  and  that  it 
could  not  be  taken  as  a  criterion  of  what  would 
be  the  outcome  were  the  United  States  Govern- 
ment to  go  into  the  business  of  loaning  money 
on  land.  It  was  argued  that  the  wealth  of  this 
mighty  and  prosperous  nation  was  so  great,  as 
compared  with  the  resources  of  Rhode  Island, 
that  any  attempt  to  make  the  experience  of  one 
apply  to  the  other  was  absurd.  As  an  answer 
to  this  objection  we  cited  the  famous  John  Law 
experiment  in  France  in  1718.  This  was  the 
Rhode  Island  principle  applied  to  a  great  nation, 
and,  as  a  basis  for  its  operation,  the  entire  prop- 
erty of  the  nation  was  brought  into  the  bank  and 
used  as  security  for  its  loans.  Law's  idea  was 
to  have  all  France  as  a  mortgage,  and  he  carried 
out  the  idea  to  its  fullest  extent.  Only  two 
years  were  necessary  for  him  to  lead  the  nation 
at  a  headlong  gallop  to  overwhelming  disaster, 
in  which  all  credit  was  destroyed,  all  industrial 
values  ruined,  and  everything  except  landed  prop- 
erty left  worthless. 

Finally,  lest  some  critics  might  say  that  all 
9 


98       CHEAP-MONEY  EXPERIMENTS 

these  unsuccessful  attempts  had  been  made  in 
times  long  past,  and  under  different  economic 
and  industrial  and  commercial  conditions  from 
those  which  obtain  in  our  own  time,  we  took 
up  the  case  of  the  Argentine  Republic,  giving  in 
much  detail  the  efforts  of  that  country  to  obtain 
prosperity  under  the  same  system  of  finance  that 
had  failed  in  Rhode  Island  and  in  France.  That 
it  was  the  same  system  was  recognized  in  Buenos 
Ayres  by  sound  financial  thinkers,  who  opposed 
its  adoption.  After  our  article  on  Law's  experi- 
ment was  in  press,  and  the  article  upon  the  Ar- 
gentine experience  had  been  completed,  we  found 
in  the  "  Buenos  Ayres  Standard "  an  editorial  ar- 
ticle upon  John  Law  from  which  we  quote  the 
following  passages : 

The  calamity  brought  on  France  by  John  Law  was  the 
most  tremendous  that  can  be  imagined ;  it  has  no  parallel 
in  history  except  the  present  crisis  in  Buenos  Ayres.  But 
in  many  respects  Law's  crisis  was  less  disastrous  than  that 
which  has  now  commenced  in  our  city,  the  outcome  of 
which  nobody  can  venture  to  predict. 

If  Argentine  statesmen  really  believe  that  they  can  issue 
notes  at  will,  they  will  find  that  they  are  sadly  mistaken. 
We  must  come,  some  day,  to  a  grand  wind-up,  and  the  con- 
vulsion that  must  ensue  will  eclipse  anything  before  seen  in 
the  world.  Men  and  women  will  go  mad  in  the  streets,  and 
no  government  will  be  able  to  face  the  hiirricane  of  popu- 
lar indignation. 

We  cannot  resist  the  wish  to  send  all  our  shinplaster  ad- 
vocates to  Venice,  to  end  their  days  in  obscurity,  like  Law. 


A  CHEAP-MONEY  RETROSPECT      99 

It  is  ouly  fair  to  Law's  memory  to  say  that  ho  admitted  the 
error  of  his  theories  before  his  death,  and  regarded  shin- 
plasters  as  a  calamity  of  the  greatest  magnitude. 

We  then  showed  that  the  subtreasury  scheme 
of  the  Farmers'  Alliance  was  more  dangerous 
than  Law's  because  the  money  which  it  called  for 
would  be  issued  upon  a  far  less  certain  and  sta- 
ble foundation  of  values  than  his  plan  provided. 
The  per  capita  delusion,  which  lies  at  the  foun- 
dation of  all  cheap-money  experiments,  was  then 
discussed  in  the  light  of  the  revelations  and  dem- 
onstrations made  in  foregoing  chapters,  for  the 
purpose  of  showing  how  utterly  mistaken  it  is. 
Michigan  experience  with  "  wild-cat  banks "  be- 
tween 1837  and  1840,  Alabama's  experiment  in 
free  banking  with  State  funds  for  capital  between 
1825  and  1842,  and  Mississippi's  experiment  of 
similar  character  between  1833  and  1840  were  the 
subjects  of  our  next  chapters.  Like  all  other 
cheap-money  experiments,  these  ended  in  disaster. 
In  every  case  the  final  result  has  been  ruin,  and 
the  wider  the  field  of  trial,  the  more  desolating 
has  been  the  calamity.  The  Argentine  Republic 
believed  itself  an  exceptional  nation,  rich  and 
powerful  enough  to  change  this  unbroken  cur- 
rent of  human  experience,  but  its  people  know 
now  how  terribly  mistaken  they  were.  We  do 
not  believe  it  possible  that  the  American  people 
will  ever  be  capable  of  such  folly. 


CHAPTER  XIII 
THE   PEOPLE'S   MONEY 

WHAT  is  the  best  kind  of  money  for  the  peo- 
ple— using  the  latter  word  in  the  sense 
in  which  it  is  employed  by  the  advocates  of 
free  silver  coinage?  These  advocates,  like  the 
champions  of  all  other  forms  of  cheap  money 
during  the  past  three  centuries,  speak  of  gold  as 
the  money  of  the  rich,  of  bankers  and  money- 
lenders, of  capitalists  and  rich  corporations, 
whom  they  denominate  "  gold-bugs,"  and  whose 
center  of  activity  is  Wall  street.  All  the  remain- 
ing elements  of  the  population  are  classed  to- 
gether as  "the  people,"  to  whom,  it  is  now 
claimed,  free  silver  is  the  money  which  would 
bring  the  largest  measure  of  prosperity  and  hap- 
piness. Is  this  claim  well  founded ;  or  is  it,  like 
all  other  alleged  cheap-money  benefits,  a  delu- 
sion founded  partly  upon  ignorance  of  economic 
laws  and  principles,  and  partly  upon  private  and 
personal  greed? 

The  silver  dollar  which  the  free-coinage  advo- 
cates desire  to  have  bestowed  upon  the  people  is 

100 


THE   PEOPLE'S  MONEY  101 

one  containing  371^  grains  of  pure  silver,  worth 
in  the  markets  of  the  world,  at  the  present  writ- 
ing, about  70  cents.  The  proposition  is  that  the 
United  States  shall  take  this  amount  of  silver, 
coin  it  free  of  charge,  stamp  it  '^  one  dollar,"  and 
make  it  a  legal  tender  for  all  public  and  private 
debts.  That  means  that  the  United  States  shall 
pay  $1.29  an  ounce  for  silver,  in  any  and  all 
amounts  from  any  and  every  quarter,  though  the 
market  price  is  only  90  cents  an  ounce,  and  shall 
make  payment  in  legal-tender  money  intercon- 
vertible with  gold  at  par. 

What  would  be  the  fii'st  effect  of  the  passage 
of  this  law?  There  is  not  an  economist  of  any 
standing  anywhere  in  the  world  who  will  not  say 
that  the  first  effect  would  be  the  disappearance  of 
gold  entirely  from  our  circulation,  and  the  de- 
scent of  the  country  to  the  silver  standard.  The 
silver  advocates  claim  that  the  mere  passage  of 
the  law  would  force  the  price  of  silver  from  90 
cents  up  to  $1.29  an  ounce,  but  there  is  no  possi- 
bility of  such  an  effect.  They  claim  that  silver 
has  fallen  in  value  because  of  its  demonetization 
by  nearly  all  the  nations  of  the  world,  whereas 
the  real  cause  is  an  enormous  increase  in  produc- 
tion, and  great  improvements  in  mining,  by  which 
the  cost  of  production  has  been  diminished.  The 
yearly  average  product  of  silver  from  1851  to 
1875  was  $51,000,000,  and  from  1876  to  1890  it 
was  $116,000,000,  an  increase  of  127  per  cent. 
The  yearly  average  product  of  gold  between  1851 


102  CHEAP-MONEY  EXPERIMENTS 

and  1875  was  $127,000,000,  and  between  1876  and 
1890  $108,000,000,  a  decrease  of  15  per  cent.  That 
is  why  gold  has  more  than  maintained  its  value, 
while  silver  has  depreciated.  In  1873  silver  was 
worth  $1.30  an  ounce,  in  1874  it  had  dropped 
to  $1.27,  in  1875  to  $1.24,  and  in  1876  to  $1.15. 
In  1877  a  free-coinage  bill  was  introduced  in 
Congress,  and  in  1878  it  was  amended  so  as  to 
provide  for  the  coinage  of  not  less  than  two  mil- 
lion nor  more  than  four  million  dollars'  worth  of 
silver  bullion  per  month  into  dollars  to  be  full 
legal  tender  at  their  nominal  value.  This  was 
passed,  vetoed  by  President  Hayes,  and  passed 
over  his  veto.  It  was  claimed  that  this  would 
raise  the  price  of  silver.  Since  it  became  a  law 
405,000,000  silver  dollars  have  been  coined,  348,- 
000,000  of  which  are  locked  up  in  the  Treasury 
vaults,  never  having  passed  into  circulation.  The 
price  of  silver  dropped  to  $1.12  an  ounce  in  1879, 
reached  $1.14  in  1880,  $1.13  in  1881  and  1882,  fell 
to  $1.11  in  1883,  to  99  cents  in  1886,  to  93J  cents 
in  1889,  and  to  90  cents  in  1892.  In  1890  Con- 
gress enacted  a  law  which  authorized  the  Secre- 
tary of  the  Treasury  to  purchase  four  and  a  half 
million  ounces  of  silver  buUion  per  month  at  the 
market  price,  and  to  give  in  return  for  it  legal- 
tender  notes  redeemable  in  gold  or  silver  at  the 
option  of  the  Government.  Even  this  enforced 
purchase  of  54,000,000  ounces  of  silver  a  year  has 
not  stayed  the  downward  progress  of  the  price. 
A  striking   demonstration   of   the   utter  folly 


THE    PEOPLE'S   MONEY  103 

of  the  claim  that  free  coinage  would  lift  the 
price  of  silver  from  90  cents  to  $1.29  an  ounce 
is  made  by  Mr.  Louis  R.  Ehrich,  of  Colorado 
Springs,  to  whose  luminous  and  valuable  work, 
"The  Question  of  Silver,"  we  are  indebted  for 
much  exact  information.  At  the  time  he  wrote 
silver  was  95  cents  an  ounce,  but  his  demonstra- 
tion is  none  the  less  effective.     He  says : 

There  is  on  our  planet,  in  round  figures,  three  billion 
nine  hundred  million  dollars'  worth  of  silver  held  as  money 
or  as  a  fund  for  money  redemption.  That  is  to-day  all 
worth  about  95  cents  an  ounce.  Now  these  free-silver  men 
tell  us  that  the  natural  alchemy  of  free  coinage  by  the 
United  States  all  alone  is  going  to  raise  these  thirty-nine 
hundred  millions  from  95  cents  to  $1.29.  That  is,  it  is 
going  to  add  a  value  of  over  a  billion  dollars  to  the  world's 
silver  stock.     Astonishing  proposition ! 

All  authorities  agree  that  the  silver  of  the 
world  would  be  dumped  almost  in  a  body  upon 
us,  at  the  advanced  coinage  price  which  our  Gov- 
ernment would  have  to  pay  till  we  abandoned  the 
gold  standard,  or  gold  went  to  a  premium,  which 
would  be  in  a  very  short  time  after  the  law  went 
into  operation.  We  should  then  have  only  one 
kind  of  money,  a  dollar  worth  70  cents,  which 
every  man  who  had  a  debt  the  payment  of  which 
was  not  stipulated  to  be  in  gold,  could  use  to  pay 
off  100  cents'  worth  of  debt,  and  which  every  man 
who  earned  money  in  any  way  would  have  to  re- 
ceive for  100  cents'  worth  of  work.  All  debts 
would  therefore  be  scaled  down  30  per  cent.,  ex- 


104      CHEAP-MONEY  EXPEEIMENTS 

cept  those  with  a  gold-payment  stipulation,  and 
all  wages,  pensions,  salaries,  life-insurance  poli- 
cies, and  savings-bank  deposits  would  be  cut 
down  in  the  same  way.  There  would  be  no  es- 
cape. The  dear  money,  gold,  would  be  driven 
out  of  circulation  by  the  cheaper  money,  silver, 
b}^  the  working  of  a  law  as  inexorable  as  the 
law  of  gravitation. 

Attention  was  called  to  this  effect  upon  the 
pensioners  of  the  Government  in  a  circular 
which  Congressman  Harter,  of  Ohio,  sent  to  all 
the  Grand  Army  Posts  a  few  weeks  ago.  In 
that  he  said: 


If  a  Free-Silver  Bill  becomes  law,  a  veteran  who  now  gets 
a  pension  worth  to  him  $4.00  per  month  would  receive  ac- 
tually but  $2.80,  with  the  chance  of  it  going  down  to  an  ac- 
tual value  of  $2.40.  Take  the  case  of  a  soldier  who  is  a 
total  physical  wreck  and  utterly  unable  to  do  for  himself. 
Such  a  man  gets  $72.00  per  month.  If  a  Free-Silver  Bill 
passes,  while  he  would  nominally  get  the  same,  he  would 
really  get  but  $50.40,  with  a  strong  probability  that  in  the 
early  future  his  $72.00  of  monthly  pension  would  be  worth 
not  over  $43.20.  This  coinage  question  should  not  be  one 
of  party  politics.  It  rises  above  partizanship.  The  honor 
of  the  country  is  at  stake.  Its  business  interests  from 
ocean  to  ocean  and  from  lake  to  gulf  are  jeopardized.  Its 
good  faith  not  only  to  its  living  soldiers  is  brought  in  ques- 
tion, but  if  a  so-called  free-coinage  bill  becomes  law,  the 
widows  and  orphans  of  the  nation's  dead  will  be  robbed  by 
the  laws  of  the  land  they  died  to  save.  The  law  would 
vrork  a  monstrous  wrong,  for  from  the  moment  it  goes  upon 
the  statute  book  it  represents  over  $45,000,000  per  year 
taken  from  the  ex-soldiers,  their  widows,  and  their  orphans. 


THE   PEOPLE'S   MONEY  105 

That  would  be  the  effect  upon  the  pensioners, 
without  a  doubt.  No  man  who  has  a  rudimen- 
tary knowledge  of  economic  laws  can  question 
that  for  a  moment.  Let  us  see  what  would  be 
the  effect  upon  savings-bank  deposits  and  life- 
insurance  policies. 

There  are  deposited  in  our  savings-banks  six- 
teen hundred  millions  of  dollars,  a  sum  greater 
than  the  entire  amount  of  money  in  active  cir- 
culation in  this  country.  These  deposits  are  for 
the  most  part  made  up  of  small  amounts,  and 
represent  the  savings  of  the  working-classes.  Of 
these  savings  a  thousand  millions  are  invested 
in  mortgages.  Many  of  these  mortgages  are 
made  payable  in  gold,  but  many  others  are  not. 
Every  one  of  them  which  has  not  a  gold-paying 
clause  can  be  paid  off  in  silver;  that  is,  the 
holder  of  it  can  be  compelled  to  receive  $700  as 
full  payment  for  every  $1000  of  money  lent.  Is 
this  honest  or  wise?  Would  a  man  who  paid 
his  honest  debts  in  that  way  ever  be  able  to 
secure  another  loan  ?  Every  mortgage  in  future 
would  bear  a  gold-paying  clause,  and  it  would 
be  very  difficult  to  induce  lenders  who  had  been 
cheated  once  to  trust  the  persons  who  had 
cheated  them  with  a  further  loan  on  any  terms. 

Who  are  the  lenders  who  would  be  cheated  if 
mortgage  indebtedness  were  to  be  paid  in  silver 
at  70  cents  on  a  dollar?  Are  they  "gold-bugs"? 
On  the  contrary,  in  many  cases  they  are  widows 
and  orphans  who  ar-e  living  on  the  hard  earnings 


106  CHEAP-MONEY  EXPEEIMENTS 

of  industrious  people,  saved  through  many  years 
of  economy  and  toil.  The  "  gold-bugs  "  have  been 
merely  the  agents  for  the  investment  of  this 
money,  seeking  for  it  a  sure  and  safe  return  to 
the  people  who  have  put  it  in  their  care.  The  in- 
dispensable requisite  for  such  return  is  the  most 
sure  and  unvarying  standard  of  value  known  to 
man — that  is,  the  gold  standard.  The  "  gold-bug" 
who  insists  upon  that  is  the  truest  possible  friend 
and  servant  of  the  people,  whether  he  be  acting 
as  their  agent  in  lending  them  money,  or  invest- 
ing and  caring  for  it  at  the  head  of  an  insurance 
company,  or  in  any  other  capacity.  Rich  men  do 
not  lend  money ;  they  borrow  it  —  borrow  it  from 
the  banks  and  insurance  companies  to  invest  it 
for  their  profit,  and  for  the  profit  of  its  owners. 
They  are  the  agents  for  all  the  money-savers  of 
the  land,  seeking  to  win  for  them  the  best  in- 
come possible  upon  their  savings.  They  place 
the  mortgages  upon  the  western  farms,  and  upon 
the  buildings  and  other  property  in  western  cities, 
and  the  money  which  they  use  for  that  purpose 
is  the  money  which  the  people,  the  workers  and 
savers  of  the  land,  place  in  banks  and  insurance 
companies  for  their  families  and  for  use  in  their 
hour  of  need. 

These  are  the  people  who  would  suffer  by  the 
swindle  of  making  70  cents  do  the  work  of  a 
dollar  by  process  of  law.  Every  working-man 
in  the  land,  every  person  drawing  a  salary,  would 
suffer  in  the  same  way.    He  would  receive  the 


THE  PEOPLE'S  MONEY  107 

same  number  of  dollars  as  before,  but  each  dollar 
would  buy  only  70  cents'  worth  of  commodities. 
He  is  in  fact  a  creditor  for  every  day's  or  every 
week's  work,  and  he  is  cheated  of  more  than  a 
third  of  his  earnings  if,  when  pay-day  comes 
around,  he  must  take  $7  in  place  of  $10,  or  $14 
in  place  of  $20. 

The  true  ''people's  money"  is  the  best  money; 
that  is,  the  money  which  will  buy  the  most  of 
what  every  man  needs,  and  which  will  be  worth 
the  same  this  week  as  it  was  last,  the  same  next 
year  as  this  year.  There  is  no  security  for  sav- 
ings of  any  kind  with  any  other  standard  of 
value,  no  safety  for  loans,  no  interest  on  bank 
deposits.  The  man  who  declares  cheap  money  in 
any  form  to  be  the  "  people's  money  "  is  the  worst 
possible  enemy  of  the  people,  for  his  policy,  if 
carried  out  by  the  Government,  would  rob  the 
people  of  a  large  portion  of  their  hard-earned 
savings ;  would  cut  down  their  wages,  and  would 
throw  the  whole  business  of  the  country  into  con- 
fusion and  doubt,  sending  paralysis  and  disas- 
ter into  every  industry  and  into  every  branch  of 
trade  and  commerce.  The  worst  sufferers  would 
be  the  toilers  of  all  kinds,  the  people  of  moderate 
means,  and  the  poor.  If  the  advocates  of  free 
coinage  were  honest  in  their  contention  that  the 
country's  welfare  would  be  enhanced  by  having 
both  silver  and  gold  as  a  basis  for  its  currency, 
they  would  consent  to  the  coinage  of  a  silver  dol- 
lar worth  100  cents ;   but  this  they  refuse  to  do. 


108  CHEAP-MONEY  EXPERIMENTS 

They  refuse  to  accept  an  honest  dollar,  and  insist 
upon  a  dishonest  dollar.  They  are  not  serving 
the  people,  but  are  serving  the  devil,  and  the  issue 
which  they  raise,  far  from  being  a  political  one,  is 
a  moral  one  of  tlie  first  magnitude. 


CHAPTER  XIV 1 
THE  FRENCH  ASSIGNATS  AND  MANDATS 

IT  would  have  been  reasonable  to  suppose 
that  the  experience  which  France  had  with 
cheap  money  under  John  Law's  guidance  in  the 
early  part  of  the  eighteenth  century,  described  in 
Chaj)ter  V  of  this  book,  would  have  imparted  a 
lesson  not  soon  to  be  forgotten.  But  such  was 
not  the  case.  Before  the  end  of  the  century  a 
new  and  not  dissimilar  experiment  was  made  in 
the  same  direction,  ending,  like  its  predecessor, 
in  failure  and  almost  boundless  confusion  and 
disaster. 

One  of  the  first  and  most  serious  troubles  which 
confronted  the  republic  established  by  the  French 
Revolution  of  1789,  was  the  scarcity  of  money. 
This  was  due  to  many  causes,  but  chiefly,  says 
Thiers,  to  the  "  want  of  confidence  occasioned  by 
the  disturbances."  The  same  authority  adds  the 
following  general  truth  about  circulation,  which 
is  applicable  to  all  countries  and  in  all  times: 

1  This  chapter  was  not  included  in  the  pamphlet  edition 
of  this  publication.  It  has  been  added  in  order  to  make 
the  collection  more  nearly  complete. 

109 
10 


110  CHEAP-MONEY  EXPERIMENTS 

"Specie  is  apparent  by  the  circulation.  When 
confidence  prevails,  the  activity  of  exchange  is 
extreme ;  money  moves  about  rapidly,  is  seen 
everywhere,  and  is  believed  to  be  more  consider- 
able because  it  is  more  serviceable ;  but  when 
political  commotions  create  alarm,  capital  lan- 
guishes, specie  moves  slowly ;  it  is  frequently 
hoarded,  and  complaints  are  unjustly  made  of  its 
absence."  To  increase  the  supply  of  circulating 
medium,  it  was  proposed  that  the  National  As- 
sembly issue  paper  money  based  on  the  church 
lands  which  had  been  confiscated  by  the  Govern- 
ment. These  lands  were  yielding  no  revenue,  but 
were  a  heavy  burden.  The  money,  to  be  called 
assignats,  was  really  a  form  of  titles  to  the  confis- 
cated lands ;  for  it  was  receivable  in  payment  for 
them,  and  was  designed,  in  addition  to  furnishing 
revenue  to  the  government,  to  bring  about  a  dis- 
tribution of  those  lauds  among  the  people.  The 
debates  of  the  National  Assembly  upon  the  prop- 
osition showed  that  John  Law's  experiment  had 
not  been  entirely  forgotten.  There  was  strong 
opposition,  but  it  was  overcome  by  arguments 
that  bear  a  curious  resemblance  to  some  which 
are  heard  in  our  day  in  favor  of  various  forms  of 
cheap  money  which  are  advocated  for  the  United 
States.  "Paper  money,"  said  one  of  the  advocates 
of  the  assignats,  "under  a  despotism  is  danger- 
ous; it  favors  corruption;  but  in  a  nation  con- 
stitutionally governed,  which  takes  care  of  its 
own  notes,  which  determines  their  number  and 
use,  that  danger  no  longer  exists."     How  like 


THE  FRENCH  ASSIGNATS  AND  MANDATS   111 

that  is  to  the  argument  heard  here,  and  in  the 
Ai'gentine  Republic  as  well,  that  a  great  and 
rich  and  prosperous  and  free  nation  could  make 
its  own  economic  laws,  invent  its  own  mone- 
tary systems,  and  even  defy  the  teachings  of  all 
other  nations  with  entire  safety !  These  curious 
arguments  carried  the  day  in  the  National  Assem- 
bly, and  a  first  issue  of  assignats,  to  the  value  of 
400,000,000  francs,  was  issued  in  December,  1789. 
They  bore  interest  and  were  made  payable  at 
sight,  but  no  interest  was  ever  paid,  and  subse- 
quent issues  had  no  interest  provision.  The  first 
issue  represented  about  one  fifth  of  the  total  value 
of  the  confiscated  lands. 

Yet  with  this  solid  basis  of  value  upon  which 
to  rest,  the  assignats  never  circulated  at  par.  A 
few  months  after  the  first  issue  demands  began 
to  be  made  for  a  second  issue,  as  is  invariably  the 
case  in  all  experiments  of  this  kind.  Talleyrand_ 
opposed  the  second  issue  in  a  speech  of  great 
ability,  many  of  whose  passages  have  passed  into 
economic  literature  as  model  statements  of  funda- 
mental monetary  principles.  "  The  assignat,"  he 
said,  "  considered  as  a  title  of  credit,  has  a  positive 
and  material  value ;  this  value  of  the  assignat  is 
precisely  the  same  as  that  of  the  land  which  it 
represents ;  but  still  it  must  be  admitted,  above 
all,  that  never  will  any  national  paper  be  upon  a 
par  with  the  metals;  never  will  the  supplemen- 
tary sign  of  the  first  representative  sign  of  wealth 
have  the  exact  value  of  its  model;  the  very  title 
proves  want,  and  tvant  spreads  alarm  and  distrust 


112  CHEAP-MONEY  EXPERIMENTS 

around  it"  And  again :  "  You  can  arrange  it  so 
that  people  shall  be  forced  to  take  a  thousand 
francs  in  paper  for  a  thousand  francs  in  specie, 
but  you  never  can  arrange  it  so  that  the  people 
shall  be  obliged  to  give  a  thousand  francs  in 
specie  for  a  thousand  francs  in  paper."  Still 
again :  "  Assignat  money,  however  safe,  however 
solid  it  may  be,  is  an  abstraction  of  paper  money; 
it  is  consequently  but  the  free  or  forced  sign,  not 
of  wealth,  but  merely  of  credit."  In  answer  to 
the  arguments  of  Talleyrand,  the  most  effective, 
because  most  "taking"  argument,  if  argument  it 
can  be  called,  was  the  following  by  Mirabeau: 
''It  is  in  vain  to  compare  assignats,  secured  on 
the  solid  basis  of  these  domains,  to  an  ordinary 
paper  currency  possessing  a  forced  circulation. 
They  represent  real  property,  the  most  secure  of 
all  possessions,  the  land  on  which  we  tread." 

The  advocates  of  money  based  on  lands  who 
are  heard  in  our  country  to-day  will  recognize 
their  own  doctrine  in  this  resounding  phrase  of 
Mirabeau.  It  carried  the  day  in  the  National 
Assembly,  and  in  September,  1790,  a  second  issue 
of  assignats,  to  the  value  of  800,000,000  francs, 
bearing  no  interest,  was  ordered. 

The  decree  for  this  second  issue  contained  a 
pledge  that  in  no  case  should  the  amount  of 
assignats  exceed  twelve  hundred  millions.  But 
the  nation  was  drunk  with  its  own  stimulant,  and 
pledges  were  of  no  value.  In  June,  1791,  a  third 
issue  of  600,000,000  was  ordered.     This  was  fol- 


THE  FEENCH  ASSIGNATS  AND  MANDATS   113 

lowed  soon  afterward  by  a  fourth  issue  of  300,- 
000,000,  and  by  a  new  pledge  that  the  total  amount 
should  never  be  allowed  to  exceed  sixteen  hun- 
dred milUons.  But  this  pledge,  like  two  others 
that  had  been  made  before  it,  was  broken  as  soon 
as  a  demand  for  more  issues  became  irresistible. 
Fresh  issues  followed  each  other  in  rapid  succes- 
sion in  1792,  and  at  the  close  of  that  year  an 
official  statement  was  put  forth  that  a  total  of 
thirty-four  hundred  millions  had  been  issued,  of 
which  six  hundred  millions  had  been  destroyed, 
leaving  twenty-eight  hundred  millions  in  cu-cu- 
lation. 

Specie  had  disappeared  from  circulation  soon 
after  the  second  issue,  and  the  value  of  the  assig- 
nats  began  to  go  steadily  and  rapidly  downward. 
Business  and  industry  soon  felt  the  effects,  and 
the  inevitable  collapse  followed.  Ex-President 
Andrew  D.  White,  whose  tract,  "Paper  Money 
Inflation  in  France,"  is  the  most  admirable  and 
complete  statement  of  this  experience  which  has 
been  published,  says  of  the  situation  at  this  stage: 

What  the  bigotry  of  Louis  XTV,  and  the  shiftlessness 
of  Louis  XV,  could  not  do  in  nearly  a  century,  was  accom- 
plished by  this  tanapering  with  the  currency  in  a  few 
months.  Everything  that  tariffs  and  custom-houses  could 
do  was  done.  Still  the  great  manufactories  of  Normandy 
were  closed  ;  those  of  the  rest  of  the  kingdom  speedily  fol- 
lowed, and  vast  numbers  of  workmen,  in  all  parts  of  the 
country,  were  thrown  out  of  employment. 

In  the  spring  of  1791  no  one  knew  whether  a  piece  of 


114  CHEAP-MONEY  EXPERIMENTS 

paper  money,  representing  100  francs,  would,  a  month  la- 
ter, have  a  purchasing  power  of  100  francs,  or  90  francs,  or 
80,  or  60.  The  result  was  that  capitalists  declined  to  em- 
bark their  means  in  business.  Enterprise  received  a  mortal 
blow.  Demand  for  labor  was  still  further  diminished.  The 
business  of  France  dwindled  into  a  mere  living  from  hand 
to  mouth.  This  state  of  things,  too,  while  it  bore  heavily 
against  the  interests  of  the  moneyed  classes,  was  still  more 
ruinous  to  those  in  more  moderate,  and  most  of  all  to 
those  in  straitened  circumstances.  With  the  masses  of 
the  people  the  purchase  of  every  article  of  supply  became 
a  speculation :  a  speculation  in  which  the  professional 
speculator  had  an  immense  advantage  over  the  buyer.  Says 
the  most  brilliant  apologist  for  French  Revolutionary  states- 
manship, "  Commerce  was  dead,  betting  took  its  place." 

In  the  early  part  of  1792  the  assignat  was  30 
per  cent,  below  par.  In  the  following  year  it  had 
fallen  to  67  per  cent,  below  par.  A  basis  for  fur- 
ther issues  was  secured  by  the  confiscation  of 
lands  of  emigrant  nobles,  and  a  flood  of  assig- 
nats  poured  forth  upon  the  country  in  steadily 
increasing  volume.  Before  the  close  of  1794 
seven  thousand  millions  had  been  issued,  and  the 
year  1796  opened  with  a  total  issue  of  forty-five 
thousand  millions,  of  which  thirty-six  thousand 
milhons  were  in  actual  circulation.  By  February 
of  that  year  the  total  issue  had  advanced  to 
45,500,000,000,  and  the  value  had  dropped  to  one 
two-hundred-and-sixty-fifth  part  of  their  nomi- 
nal value.  A  note  professing  to  be  worth  about 
$20  of  oui'  money  was  worth  about  6  cents. 

The  Government  now  came  forward  with  a  new 


THE  FRENCH  ASSIGNATS  AND  MANDATS   115 

scheme,  offering  to  redeem  the  assiguats,  on  the 
basis  of  30  to  1,  for  mandats — a  new  form  of  paper 
money,  which  entitled  the  hokler  to  take  immedi- 
ate possession,  at  their  estimated  value,  of  any  of 
the  lands  pledged  by  the  assignats.  Eight  hun- 
dred millions  in  mandats  were  issued,  to  be  ex- 
changed for  the  assignats,  and  the  plates  for 
printing  the  latter  were  destroj^ed.  Six  hun- 
dred millions  more  of  mandats  were  issued  for 
the  public  service.  At  first  the  mandats  circu- 
lated at  as  high  as  80  per  cent,  of  their  nominal 
value,  but  additional  issues  sent  them  down  in 
value  even  more  rapidly  than  the  assignats  had 
fallen,  and  in  a  very  short  time  they  were  worth 
only  one  thousandth  part  of  their  nominal  value. 
It  was  evident  that  the  end  had  come.  Before 
the  assignats  were  withdrawn,  the  Government 
resorted  to  various  expedients  to  hold  up  their 
value  by  legislative  decrees.  The  use  of  coin  was 
prohibited;  a  maximum  price  in  assignats  was 
fixed  for  commodities  by  law;  the  purchase  of 
specie  was  forbidden  under  penalty  of  imprison- 
ment in  irons  for  six  years ;  and  the  sale  of  assig- 
nats below  their  nominal  value  was  forbidden 
under  penalty  of  imprisonment  for  twenty  years 
in  chains.  Investment  of  capital  in  foreign  coun- 
tries was  punishable  with  death.  All  these  efforts 
were  as  futile  as  similar  efforts  had  been  in  John 
Law's  time.  The  value  of  the  assignats  went 
steadily  down.  Bread-riots  broke  out  in  Paris, 
and  the  Government  was  compelled  to  supply  the 


116      CHEAP-MONEY  EXPERIMENTS 

capital  with  provisions.  Wlien  the  mandats  fell 
as  the  assignats  had  fallen  before  them,  the  Gov- 
ernment was  convinced  that  it  was  useless  to  try 
to  give  value  to  valueless  paper  by  simply  print- 
ing more  paper  and  calling  it  by  another  name ; 
and  on  July  1,  1796,  it  swept  away  the  whole 
mass  by  issuing  a  decree  authorizing  everybody 
to  transact  business  in  any  money  he  chose.  ''No 
sooner/'  says  Mr.  McLeod,  in  his  "  Economical 
Philosophy/'  ''was  this  great  blow  struck  at  the 
paper  currency,  of  making  it  pass  at  its  current 
value,  than  specie  immediately  reappeared  in  cir- 
culation." In  commenting  upon  this  second  ex- 
perience of  France  with  paper  money,  which 
lasted  for  about  six  years,  Prof.  A.  L.  Perry, 
in  his  "Elements  of  Political  Economy,"  thus 
graphically  and  truthfully  sums  up  the  conse- 
quences : 

The  distress  and  consternation  into  which  a  country  falls 
when  its  current  Measure  of  Services  is  disturbed  and  de- 
stroyed, as  it  was  in  this  case,  is  past  all  powers  of  descrip- 
tion. The  prisons  and  the  guillotine  did  not  compare  with 
the  assignats  in  causing  suffering  dm-ing  those  six  years. 
This  example  is  significant  because  it  shows  the  powerless- 
ness  of  even  the  strongest  and  most  unscrupulous  govern- 
ments to  regulate  the  value  of  anything.  The  assignats 
were  depreciating  during  the  very  months  in  which  Robes- 
pierre and  the  Committee  of  Public  Safety  were  wielding  the 
power  of  life  and  death  in  France  with  terrific  energy. 
They  did  their  utmost  to  stop  the  sinking  of  the  Revolu- 
tionary paper.  But  valiie  knows  its  own  laws,  and  follows 
them  in  spite  of  decrees  and  penalties. 


CHAPTER  XV 
ANOTHER  WORD  ON  ''CHEAP  MONEY" 

WITH  the  failure  of  the  free-coinage  bill  in 
Congress,  the  danger  that  this  country 
might  be  called  upon  to  pass  through  the  quag- 
mire of  a  fresh  cheap-money  experiment  seems  to 
have  been  averted,  for  the  present  surely,  and  in 
all  probability  for  a  long  time  to  come.  It  is  ap- 
parent now  that  whatever  of  popular  sentiment 
there  may  have  been  behind  the  free-silver  move- 
ment at  its  beginning,  there  was  very  little  behind 
it  at  the  time  of  the  free-coinage  biU's  failure, 
and  even  less  at  this  moment  than  there  was  then. 
The  American  people  have  always  shown  great 
quickness  in  educating  themselves  on  financial 
and  economic  questions,  and  the  sudden  subsi- 
dence of  the  free-silver  "  craze "  shows  that  the 
work  of  education,  so  far  as  that  form  of  cheap 
money  is  concerned,  has  been  practically  accom- 
plished. 

The  Century  rejoices  sincerely  in  the  assur- 
ances which  have  come  to  it  from  many  sources 
that  its  efforts  to  assist  in  this  work  of  education 

117 


118  CHEAP-MONEY  EXPERIMENTS 

have  uot  been  unsuccessful.  Now  that  the  work 
is  ended  for  the  present,  it  may  not  be  amiss,  in 
taking  leave  of  the  subject,  to  quote  a  few  strik- 
ing passages,  on  the  evils  of  cheap  money,  from 
the  writings  of  two  masters  of  vigorous  English 
who  studied  different  phases  of  those  evils  in 
former  times.  The  truth  of  their  forcible  lan- 
guage will  be  all  the  more  appreciated  now,  since 
we  are  coming  more  and  more  each  day  to  a 
proper  realization  of  the  perils  from  which,  as 
a  nation,  we  have  had  so  narrow  an  escape. 

In  1722  one  William  Wood,  a  hardware  mer- 
chant, obtained  from  the  British  crown  a  patent 
to  coin  copper  money  for  Ireland  to  the  amount 
of  £108,000.  He  had  no  power  to  compel  any 
one  to  take  his  halfpence,  which  he  coined  under 
this  grant  and  sent  to  Ireland ;  and  when  a  large 
batch  of  them  arrived  there  the  people  refused  to 
take  and  use  them  as  money.  They  were  made 
of  such  base  metal,  and  were  so  much  smaller 
than  the  English  halfpence,  that  they  were  worth 
in  gold  or  silver  not  more  than  a  twelfth  of  their 
face- value.  When  the  Irish  people  refused  to 
accept  them  as  money,  there  was  talk  of  Wood's 
obtaining  orders  from  the  crown  compelling  the 
king's  commissioners  and  collectors  of  customs 
in  Ireland  to  take  them  as  money,  and  thus  force 
them  into  circulation.  Upon  this  proposition. 
Dean  Swift,  then  in  the  full  vigor  of  his  wonder- 
ful powers  as  a  controversialist,  published  a  series 
of  pamphlets  or  letters  addressed  to  the  trades- 


ANOTHER  WORD  ON  "CHEAP  MONEY"  119 

men,  shopkeepers,  farmers,  and  common  people 
in  general,  on  the  subject  of  the  debased  coin, 
which  made  a  powerful  impression  in  both  Eng- 
land and  Ireland,  and  hastened  the  repeal  of 
Wood's  patent.  These  letters  were  signed  "Dra- 
pier,"  and  are  known  in  the  collections  of  Swift's 
works  under  that  title.  We  shall  make  a  few 
quotations  from  them  with  a  view  to  showing 
how  perfectly  his  arguments  against  the  folly  of 
debased  or  cheap  money,  made  170  years  ago,  ap- 
ply to  the  proposal  to  inflict  upon  the  American 
people  a  debased  silver  dollar  worth  only  70  cents. 
It  was  urged  in  defense  of  Wood's  money  that 
copper  halfpence  were  scarce  in  Ireland ;  that  the 
people  needed  more  copper  money  for  the  trans- 
action of  their  business;  and  that  if  the  supply 
were  greater  everybody  would  be  more  prosper- 
ous. All  that  sounds  very  familiar.  It  was  also 
said,  in  answer  to  a  query  as  to  whether  Wood 
would  keep  his  coinage  within  the  £108,000  limit, 
that  he  would  be  guided  in  that  respect  by  the 
"exigencies  of  trade.^'  That  phrase  also  sounds 
very  familiar.  ■  Here  is  what  Swift  says  on  that 
point : 

Wood  proposes  that  he  will  not  coin  above  £40,000  un- 
less the  exigencies  of  trade  require  it :  First,  I  observe  that 
this  sum  of  £40,000  is  almost  double  to  what  I  proved  to  be 
sufficient  for  the  whole  kingdom,  although  we  had  not  one 
of  our  old  halfpence  left.  Again  I  ask,  who  is  to  be  judge 
when  the  exigencies  of  trade  require  it?  Without  doubt 
he  means  himself,  for  as  to  us  of  this  poor  kingdom,  who 
must  be  utterly  ruined  if  his  project  should  succeed,   we 


120  CHEAP-MONEY  EXPERIMENTS 

were  never  once  consulted  till  the  matter  was  over,  and  he 
will  judge  of  our  exigencies  by  his  own ;  neither  will  these 
be  ever  at  an  end  till  he  and  his  accomplices  will  think 
they  have  enough. 

In  reference  to  the  effects  of  cheap  halfpence 
on  the  people  of  Ireland,  Swift  said: 

Mr.  Wood  will  never  be  at  rest  but  coin  on :  so  that  in 
some  years  we  shall  have  at  least  five  times  four  score  and 
ten  thousand  pounds  of  this  lumber.  Now  the  current 
money  of  this  kingdom  is  not  reckoned  to  be  above  four 
hundred  thousand  pounds  in  all ;  and  while  there  is  a  silver 
sixpence,  these  blood-suckers  will  never  be  quiet.  When 
once  the  kingdom  is  reduced  to  such  a  condition  I  will  tell 
you  what  must  be  the  end :  The  gentlemen  of  estates  will 
all  turn  off  their  tenants  for  want  of  payment,  because  the 
tenants  are  obliged  by  their  leases  to  pay  sterling,  which 
is  lawful  current  money  of  England;  then  they  will  turn 
their  own  farmers,  run  all  into  sheep  where  they  can,  keep- 
ing only  such  other  cattle  as  are  necessary ;  then  they  will 
be  their  own  merchants,  and  send  their  wool  and  butter 
and  hides  and  linen  beyond  sea  for  ready  money  and  wines 
and  spices  and  silks.  The  farmers  must  rob  or  beg  or 
leave  the  county.  The  shopkeepers  in  this  and  every  other 
town  must  break  and  starve,  for  it  is  the  landed  man  that 
maintains  the  merchant,  and  shopkeeper,  and  handicrafts- 
man. I  should  never  have  done,  if  I  were  to  tell  you  all 
the  miseries  that  we  shall  undergo  if  we  be  so  foolish  and 
wicked  as  to  take  this  cursed  coin.  ...  In  short,  those 
halfpence  are  like  the  accursed  thing,  which,  as  the  Scrip- 
ture tells  us,  the  children  of  Israel  were  forbidden  to  touch; 
they  will  run  about  like  the  plague  and  destroy  everyone 
who  lays  his  hands  upon  them. 

Carlyle,  in  his  ''French  Revolution,"  uses 
scarcely  less  vigorous,   and    even   more   pictur- 


ANOTHER  WOED  ON  "CHEAP  MONEY"  121 

esque,  language  in  regard  to  the  assignats  which 
were  issued  in  France  between  1789  and  1796. 
These  were  in  the  form  of  paper  money,  based 
at  first  upon  the  security  of  confiscated  church 
lands,  and  afterward  upon  all  the  national  do- 
mains and  other  property.  They  were  issued  to 
the  amount  of  over  forty-five  billion  francs,  and 
before  they  were  withdrawn  depreciated  to  less 
than  one  three-hundredth  of  their  face-value. 
Carlyle  records  that  a  hackney-coachman  in  Paris 
demanded  six  thousand  livres,  about  fifteen  hun- 
dred dollars,  as  fare  for  a  short  ride,  in  the  last 
days  of  the  assignats.  In  regard  to  the  first  issue, 
he  says  in  the  first  volume  of  the  '^  French  Revo- 
lution " : 

Wherefore,  on  the  19th  day  of  December,  a  paper-money 
of  "Assignats,"  of  Bonds  secured,  or  assigned,  on  that  Cleri- 
co-National  Property,  and  unquestionably  at  least  in  pay- 
ment of  that, —  is  decreed:  the  first  of  a  long  series  of  like 
financial  performances,  which  shall  astonish  mankind.  So 
that  now,  while  old  rags  last,  there  shall  be  no  lack  of 
circulating  medium:  whether  of  commodities  to  circu- 
late thereon  is  another  question.  But,  after  all,  does  not 
this  assignat  business  speak  volumes  for  modern  science  ? 
Bankruptcy,  we  may  say,  was  come,  as  the  end  of  all  Delu- 
sions needs  must  come  :  yet  how  gently,  in  softening  diffu- 
sion, in  mild  succession,  was  it  hereby  made  to  fall;  —  like 
no  all-destroying  avalanche  ;  like  gentle  showers  of  a  pow- 
dery impalpable  snow,  shower  after  shower,  till  all  was 
indeed  buried,  and  yet  little  was  destroyed  that  could  not 
be  replaced,  be  dispensed  with!  To  such  length  has  mod- 
ern machinery  reached.  Bankruptcy  we  said  was  great; 
but  indeed  Money  itself  is  a  standing  miracle. 
11 


122  CHEAP-MONEY   EXPERIMENTS 

The  miracle  of  the  assignats  consisted  in  creat- 
ing what  appeared  to  be  something  out  of  no- 
thing ;  but  it  returned  in  due  season  to  nothing, 
leaving  ruin  and  desolation  behind  it. 


>J 


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